10-Q

THE UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended August 2, 2003

OR

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

Commission file number 0-18632

THE WET SEAL, INC.

(Exact name of registrant as specified in its charter)

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

26972 Burbank Foothill Ranch, California	92610
(Address of principal executive offices)	(Zip code)

(949) 583-9029

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12(b)-2 of HR Exchange Act)    Yes  x  No

The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, par value $.10 per share, at September 12, 2003 was 25,279,578 and 4,502,833, respectively. There were no shares of Preferred Stock, par value $.01 per share, outstanding at September 12, 2003.

THE WET SEAL, INC.

FORM 10-Q

Index

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated condensed balance sheets (unaudited) as of August 2, 2003 and February 1, 2003	3-4
	Consolidated condensed statements of operations and comprehensive income (loss)(unaudited) for the quarter and six months ended August 2, 2003 and August 3, 2002	5
	Consolidated condensed statements of cash flows (unaudited) for the six months ended August 2, 2003 and August 3, 2002	6
	Notes to consolidated condensed financial statements (unaudited)	7-12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23-25
PART II.	OTHER INFORMATION	26-27
	SIGNATURE PAGE	28
	EXHIBIT 10.1	29-45
	EXHIBIT 10.2	46-60
	EXHIBIT 31.1	61-62
	EXHIBIT 31.2	63-64
	EXHIBIT 32.1	65
	EXHIBIT 32.2	66
	EXHIBIT 99.1	67-73

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THE WET SEAL, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

(IN THOUSANDS)

	August 2, 2003			February 1, 2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	18,535		$	21,969
Short-term investments		48,484			39,237
Income tax receivable		15,638			11,561
Other receivables		2,851			3,906
Merchandise inventories		48,738			31,967
Prepaid expenses		3,744			11,992
Deferred tax charges		2,472			2,472
Total current assets		140,462			123,104
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Leasehold improvements		132,595			127,792
Furniture, fixtures and equipment		89,673			86,062
Leasehold rights		2,350			2,350
		224,618			216,204
Less accumulated depreciation		(116,475	)		(106,423	)
Net equipment and leasehold improvements		108,143			109,781
LONG-TERM INVESTMENTS		22,924			33,639
OTHER ASSETS:
Deferred taxes and other assets		11,611			11,778
Goodwill		6,323			6,323
Total other assets		17,934			18,101
TOTAL ASSETS	$	289,463		$	284,625

See accompanying notes to unaudited consolidated condensed financial statements.

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THE WET SEAL, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE DATA)

	August 2, 2003		February 1, 2003
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable—merchandise	$	49,799	$	22,248
Accounts payable—other		12,213		13,827
Accrued liabilities		21,953		22,520
Total current liabilities		83,965		58,595
LONG-TERM LIABILITIES:
Deferred rent		9,657		9,315
Other long-term liabilities		5,606		5,392
Total long-term liabilities		15,263		14,707
Total liabilities		99,228		73,302
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred Stock, $.01 par value, authorized 2,000,000 shares; none issued and outstanding at August 2, 2003 and February 1, 2003, respectively		—		—
Common Stock, Class A, $.10 par value, authorized 60,000,000 shares; 25,089,544 and 24,836,386 shares issued and outstanding at August 2, 2003 and February 1, 2003, respectively		2,509		2,484
Common Stock, Class B Convertible, $.10 par value, authorized 10,000,000 shares; 4,604,249 and 4,804,249 shares issued and outstanding at August 2, 2003 and February 1, 2003, respectively		460		480
Paid-in capital		59,884		59,036
Retained earnings		127,382		149,323
Total stockholders’ equity		190,235		211,323
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	289,463	$	284,625

See accompanying notes to unaudited consolidated condensed financial statements.

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THE WET SEAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

	Quarter Ended					Six Months Ended
	August 2, 2003			August 3, 2002		August 2, 2003			August 3, 2002
SALES	$	126,039		$	146,158	$	249,654		$	302,778
COST OF SALES (including buying, merchandise planning, distribution and occupancy costs)		107,742			101,923		206,632			205,999
GROSS MARGIN		18,297			44,235		43,022			96,779
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		39,379			39,272		77,602			78,864
OPERATING INCOME (LOSS)		(21,082	)		4,963		(34,580	)		17,915
INTEREST INCOME, NET		424			903		825			1,903
INCOME (LOSS) BEFORE INCOME TAXES		(20,658	)		5,866		(33,755	)		19,818
PROVISION (BENEFIT) FOR INCOME TAXES		(7,230	)		2,200		(11,814	)		7,432
NET INCOME (LOSS)	$	(13,428	)	$	3,666	$	(21,941	)	$	12,386
COMPREHENSIVE INCOME (LOSS)	$	(13,428	)	$	3,666	$	(21,941	)	$	12,386
NET INCOME (LOSS) PER SHARE, BASIC	$	(0.45	)	$	0.12	$	(0.74	)	$	0.41
NET INCOME (LOSS) PER SHARE, DILUTED	$	(0.45	)	$	0.12	$	(0.74	)	$	0.39
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC		29,608,362			30,351,080		29,591,762			30,236,446
WEIGHTED AVERAGE SHARES OUTSTANDING, DILUTED		29,608,362			31,691,653		29,591,762			31,648,146

See accompanying notes to unaudited consolidated condensed financial statements.

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THE WET SEAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

	Six Months Ended
	August 2, 2003			August 3, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(21,941	)	$	12,386
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		13,340			10,302
Loss on disposal of equipment and leasehold improvements		301			316
Stock compensation		677			—
Changes in operating assets and liabilities:
Income tax receivable		(4,077	)		—
Other receivables		1,055			(2,389	)
Merchandise inventories		(16,771	)		(10,999	)
Prepaid expenses		8,248			(2,274	)
Other assets		167			(35	)
Accounts payable and accrued liabilities		25,370			4,878
Income taxes payable		—			(3,834	)
Deferred rent		342			57
Other long-term liabilities		214			383
Net cash provided by operating activities		6,925			8,791
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements		(10,998	)		(29,503	)
Investment in marketable securities		(16,122	)		(43,211	)
Proceeds from sale of marketable securities		16,585			54,448
Net cash (used in) investing activities		(10,535	)		(18,266	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock		(854	)		—
Proceeds from issuance of stock		1,030			4,154
Net cash provided by financing activities		176			4,154
NET (DECREASE) IN CASH AND CASH EQUIVALENTS		(3,434	)		(5,321	)
CASH AND CASH EQUIVALENTS, beginning of period		21,969			34,345
CASH AND CASH EQUIVALENTS, end of period	$	18,535		$	29,024
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest—credit facility	$	8		$	15
Income taxes, net	$	—		$	12,659

See accompanying notes to unaudited consolidated condensed financial statements.

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THE WET SEAL, INC.

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1—Basis of Presentation and significant accounting policies:

Basis of Presentation

The information set forth in these consolidated condensed financial statements is unaudited. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Certain reclassifications have been made to 2002 financial statements to conform with the 2003 presentation.

In the opinion of management, all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation have been included. The results of operations for the quarter ended August 2, 2003 are not necessarily indicative of the results that may be expected for the year ending January 31, 2004. For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report of The Wet Seal, Inc. (the Company) for the year ended February 1, 2003.

New Accounting Pronouncements

In November 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143 “Accounting for Asset Retirement Obligations,” which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

In July 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force (EITF) Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized

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when the liability is incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. The Company adopted the provisions of SFAS 146 for exit or disposal activities initiated after December 31, 2002.

In November 2002, the FASB issued FASB Interpretation No. (FIN) 45, “Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others,” an interpretation of FASB Statements No. 5, 57 and 107, and rescission of FIN 34, “Disclosure of Indirect Guarantees of Indebtedness of Others.” FIN 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 while the provisions of the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of this interpretation did not have a material impact on the Company’s results of operations or financial position.

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities,” an interpretation of ARB No. 51. FIN 46 requires that variable interest entities be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. FIN 46 also requires disclosures about variable interest entities that companies are not required to consolidate but in which a company has a significant variable interest. The consolidation requirements of FIN 46 will apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements will apply to entities established prior to January 31, 2003 in the first fiscal year or interim period beginning after June 15, 2003. The disclosure requirements will apply in all financial statements issued after January 31, 2003. The Company believes the adoption of FIN 46 will have no impact on its results of operations or financial position, as the Company has no interests in variable interest entities.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity,” which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope, which may

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have previously been reported as equity, as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not believe that the adoption of SFAS No. 150 will have a significant impact on its results of operations, financial position or cash flows.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123.” This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirement of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 is effective for fiscal years ending after December 15, 2002. The Company determined not to adopt the fair value based method of accounting for stock-based employee compensation, but did adopt the additional disclosure requirements of SFAS 148 in fiscal 2002.

Stock Based Compensation

The Company continues to account for its stock-based awards using the intrinsic value method in accordance with APB No. 25, “Accounting for Stock Issued to Employees,” and its related interpretations. Accordingly, no compensation expense has been recognized in the consolidated financial statements for employee incentive stock options or nonqualified stock options.

SFAS No. 123, “Accounting for Stock-Based Compensation,” requires the disclosure of pro forma net income and earnings per share had the Company adopted the fair value method as of the beginning of fiscal 1995. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company’s stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values.

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The Company’s calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions:

	Quarter Ended				Six Months Ended
	August 2, 2003		August 3, 2002		August 2, 2003		August 3, 2002
Dividend Yield	0.00	%	0.00	%	0.00	%	0.00	%
Expected Stock Volatility	70.17	%	70.85	%	70.17	%	70.85	%
Risk-Free Interest Rate	3.37	%	3.02	%	3.37	%	3.02	%
Expected Life of Option following vesting (in months)	60		60		60		60

The Company’s calculations are based on a valuation approach and forfeitures are recognized as they occur. If the computed fair values of the stock option awards had been amortized to expense over the vesting period of the awards, net income (loss) (in thousands) and earnings (loss) per share would have been changed to the pro forma amounts indicated below:

	Quarter Ended					Six Months Ended
	August 2, 2003			August 3, 2002		August 2, 2003			August 3, 2002
Net Income (loss):
As reported		(13,428	)		3,666		(21,941	)		12,386
Pro forma		(14,882	)		1,966		(25,002	)		8,940
Net Income (loss)
Per Share, Basic:
As reported	$	(0.45	)	$	0.12	$	(0.74	)	$	0.41
Pro forma	$	(0.50	)	$	0.06	$	(0.84	)	$	0.30
Net Income (loss)
Per Share, Diluted:
As reported	$	(0.45	)	$	0.12	$	(0.74	)	$	0.39
Pro forma	$	(0.50	)	$	0.06	$	(0.84	)	$	0.30

The above pro forma adjustments are not indicative of future period pro forma adjustments, when the calculation will apply to all applicable stock options.

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NOTE 2—Revolving Credit Arrangement:

Under an amended secured revolving line-of-credit arrangement with Bank of America, N.A., the Company may borrow up to a maximum of $50.0 million on a revolving basis through July 1, 2004. The cash borrowings under the arrangement bear interest at the bank’s prime rate or, at the Company’s option, LIBOR plus 1.5%.

The credit arrangement imposes quarterly and annual financial covenants requiring the Company to maintain certain financial ratios. In addition, the credit arrangement requires that the bank approve the payment of dividends and restricts the level of capital expenditures. At August 2, 2003, the Company was in compliance with these covenants and the Company had no borrowings outstanding under the credit arrangement. There were $18.1 million in open letters of credit related to imported inventory orders as well as standby letters of credit totaling $0.9 million, yielding availability under the line of credit of $31.0 million, as of August 2, 2003.

NOTE 3—Net Income (Loss) Per Share:

Net income (loss) per share, basic, is computed based on the weighted average number of shares of Class A and Class B common stock outstanding for the period.

Net income (loss) per share, diluted, is computed based on the weighted average number of shares of Class A and Class B common stock and potentially dilutive common stock equivalents outstanding for the period. Stock options were not included in the computation of diluted net loss per share for the quarter and six months ended August 2, 2003, because to do so would have been antidilutive.

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

(In thousands, except share and per share data)	Quarter Ended					Six Months Ended
	August 2, 2003			August 3, 2002		August 2, 2003			August 3, 2002
Net income (loss)	$	(13,428	)	$	3,666	$	(21,941	)	$	12,386
Weighted average Number of common shares:
Basic		29,608,362			30,351,080		29,591,762			30,236,446
Effect of dilutive Securities—stock Options		—			1,340,573		—			1,411,700
Diluted		29,608,362			31,691,653		29,591,762			31,648,146
Net income (loss) per share:
Basic	$	(0.45	)	$	0.12	$	(0.74	)	$	0.41
Effect of dilutive Securities—stock Options		—			—		—			0.02
Diluted	$	(0.45	)	$	0.12	$	(0.74	)	$	0.39

NOTE 4—Treasury Stock:

On October 1, 2002, the Company’s Board of Directors authorized the repurchase of up to 5,400,000 of the outstanding common stock of the Company’s Class A Common shares. This amount includes the remaining shares previously authorized for repurchase by the Company’s Board of Directors. All shares repurchased under this plan will be retired as authorized by the Company’s Board of Directors. During fiscal 2002, the Company repurchased 947,400 shares for $8.2 million and retired these shares. An additional 124,500 shares were repurchased for $0.9 million in the first quarter of fiscal 2003 and these shares were retired. As of August 2, 2003, there were 4,328,100 shares remaining that are authorized for repurchase.

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Item 2— Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated condensed financial statements and the notes thereto.

We are one of the largest national mall-based specialty retailers focusing primarily on young women’s apparel and accessories. We currently operate 622 retail stores in 47 states, Washington D.C. and Puerto Rico. Of the 622 stores, 467 are Wet Seal stores, 20 are Contempo Casuals stores, 104 are Arden B. stores and 31 are Zutopia stores. We opened 65 stores and closed 31 stores during the period from August 3, 2002 to August 2, 2003.

Critical Accounting Policies and Estimates

Our consolidated condensed financial statements were prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

The preparation of financial statements in conformity with generally accepted accounting principles requires the appropriate application of certain accounting policies, some of which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements. Since future events and their impact cannot be determined with absolute certainty, the actual results will inevitably differ from our estimates.

Our accounting policies are generally straightforward, but inventory valuation requires more significant management judgments and estimates.

Merchandise inventories are stated at the lower of cost (first in, first out) or market. Cost is calculated using the retail inventory method. The retail inventory method is used to estimate the ending inventory at cost by employing a cost to retail (selling price) ratio. The ending inventory is first determined at selling price and then converted to cost. Purchases, sales, net markdowns (less mark-ups), charity, discounts and estimated shrink are considered in arriving at the cost to retail ratio. Inventories include items that have been marked down to management’s best estimate of their fair market value. Management’s decision to mark

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down merchandise is based on maintaining the freshness of our product offering. Markdowns are taken regularly to effect the rapid sale of slow moving inventory and to make room for new merchandise arriving daily to the stores.

To the extent that management’s estimates differ from actual results, additional markdowns may be required that could reduce our gross margin, operating income and the carrying value of inventories. Our success is largely dependent upon our ability to anticipate the changing fashion tastes of our customers and to respond to those changing tastes in a timely manner. If we fail to anticipate, identify or react appropriately to changing styles, trends or brand preferences of our customers, we may experience lower sales, excess inventories and more frequent and extensive markdowns, which would adversely affect our operating results.

We believe the application of our accounting policies, and the estimates inherently required therein, are reasonable. Our accounting policies and estimates are reevaluated on an ongoing basis, and adjustments are made when facts and circumstances dictate a change. Our accounting policies are more fully described in Note 1 to the consolidated financial statements and in Management’s Discussion and Analysis, respectively, included in our Annual Report for the fiscal year ended February 1, 2003.

Current Trends and Outlook

We reported a comparable store sales decline of 19.8% for the second quarter, with sequential month-over-month improvement in sales trends during the quarter. The results reflect an improvement in transaction count and units sold per customer transaction, which supports our belief that the Wet Seal chain has a loyal customer base that is returning to our stores as we continue to make improvements to our merchandise mix. The “bottoms” business improved with the re-launch of the Blue Asphalt private label denim line in the last two weeks of the quarter, complemented by sales trend improvement with active-wear and track jackets. These sales improvements were tempered by slow sales in our “tops” business. Meanwhile, we believe that the Arden B. business has been repositioned and returned to a more sophisticated offering, with a good response to newly introduced lines that include boucle, twill and cashmere. Zutopia’s business continues to produce comparable store sales declines in a very price sensitive environment.

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Despite the trend improvement in transaction count and units sold per transaction, there was continued deterioration in the average retail price per item sold, the “average unit retail.” The reduction in the average unit retail is largely the result of aggressive markdowns taken on late spring and early summer merchandise, as well as price reductions on selected merchandise. The aggressive markdowns reflect our continued efforts to maintain careful control over the “freshness” of our inventory as we manage our business during a period of negative comparable store sales trends.

Although we have seen only modest improvements in comparable store sales as we progress into the third quarter, we continue to focus on streamlining operations and capturing additional savings to bring our cost structure in line with current sales.

We are encouraged by the rebuilding strategy under the stewardship of our new chief executive officer and the appointment of several key executives who are expected to help us move the business forward. We believe that the appointment of our new Senior Vice President-Creative Director will positively influence the fashion direction of the Wet Seal business as he becomes involved in product design and development as well as with the stores’ visual presentation and the Company’s marketing strategy.

Results of Operations

The quarter ended August 2, 2003 compared to the quarter ended August 3, 2002.

Sales for the quarter ended August 2, 2003 were $126.0 million compared to sales for the prior year second quarter of $146.2 million, a decrease of $20.2 million or 13.8%. The decrease in sales was due to a comparable store sales decline of 19.8% for the quarter, partially offset by a net increase of 34 stores compared to the second quarter in the prior year. In the same quarter last year comparable store sales increased 1.6%. We experienced improved sequential monthly comparable store sales trends during the quarter, reflecting an improvement in transaction count and in units sold per customer transaction, offset by a decline in the retail price of the average unit sold.

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The cost of sales (including buying, merchandise planning, distribution and occupancy costs) was $107.7 million for the quarter compared to $101.9 million for the same quarter last year, an increase of $5.8 million or 5.7%. As a percentage of sales, cost of sales was 85.5% for the second quarter this year compared to 69.7% for the same quarter last year, an increase of 15.8%. More than half of the increase in cost of sales as a percentage of sales was due to the loss of leverage for occupancy, buying and merchandise planning costs as a result of lower sales. The remainder came from aggressive mark-downs taken during the quarter to clear out late spring and early summer merchandise. There was also a decrease in the initial mark-up, reflecting efforts to improve the price/value relationship in our pricing structure for selected items.

Selling, general and administrative expenses (SG&A) were $39.4 million for the second quarter compared to $39.3 million for the second quarter last year, an increase of $0.1 million. As a percentage of sales, SG&A expenses were 31.2% for the quarter this year compared to 26.9% for the same quarter last year, an increase of 4.3%. While store payroll as a percentage of sales contributed more than half of the 4.3% increase, there were actually less payroll dollars spent per store during the second quarter of this year than in the second quarter of last year, with the increase as a percentage of sales over last year reflecting both the deleverage caused by lower sales as well as the greater number of stores open this year. SG&A costs also increased as a result of investments made over the past year in upgrading our field management. These additional costs were offset by lower advertising expenditures and central office payroll. Additionally, the freight cost per unit to deliver merchandise to the stores declined approximately 9% from the second quarter of last year.

Interest income, net, was $0.4 million for the second quarter compared to $0.9 million for the second quarter last year, a decrease of $0.5 million. This decrease was due to a reduction in the invested balance compared to the same period in the prior year as well as to a reduction in market interest rates on the invested balance.

The income tax provision reflected a $7.2 million benefit for the quarter ended August 2, 2003 compared to a $2.2 million charge for the quarter ended August 3, 2002. The effective income tax rate for the second quarter of this year was 35.0%, compared to the 37.5% rate of the prior year second quarter. The year-over-year reduction in the effective tax rate reflects an expectation that tax exempt interest income and charitable deductions of inventory will be a higher proportion of full year net income or loss than similar expectations at the end of the second quarter last year.

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Based on the factors noted above, the net loss was $13.4 million or $0.45 per diluted share for the quarter ended August 2, 2003 compared to net income of $3.7 million or $0.12 per diluted share for the quarter ended August 3, 2002, a decrease of $17.1 million. This represents a net loss of 10.7% of sales for the second quarter this year compared to a net income of 2.5% of sales for the same quarter last year.

The six months ended August 2, 2003 compared to the six months ended August 3, 2002.

Sales for the six months ended August 2, 2003 were $249.7 million compared to sales for the prior year six months of $302.8 million, a decrease of $53.1 million or 17.5%. The decrease in sales was due to the comparable store sales decline of 22.8% for the six months, partially offset by a net increase of 34 stores. In the same six months last year comparable store sales increased 4.9%. We have experienced a slow, but progressive, comparable store sales trend improvement from the first quarter decrease of 25.5% to the second quarter decrease of 19.8%.

The cost of sales (including buying, merchandise planning, distribution and occupancy costs) was $206.6 million for the six months ended August 2, 2003 compared to $206.0 million for the same six months of last year, an increase of $0.6 million or 0.3%. As a percentage of sales, cost of sales was 82.8% for the six months this year compared to 68.0% for the same six months last year, an increase of 14.8%. The increase in cost of sales as a percentage of sales was impacted by two key factors: the loss of leverage for occupancy, buying and merchandise planning costs as a result of lower sales, and the significantly higher mark-down activity this year, reflecting continuing efforts to clear slow-moving inventory during a period of significant negative comparable store sales. Distribution center costs decreased in dollar terms and remained basically flat as a percentage of sales, reflecting gains in efficiency over the prior year which helped offset what could otherwise have been a higher percent of sales due to the fixed cost component of the distribution center costs.

SG&A expenses were $77.6 million for the six months ended August 2, 2003, compared to $78.9 million for the same six months last year, a decrease of $1.3 million. As a percentage of sales, SG&A expenses were 31.1% for the six months this year compared to 26.0% for the same six months last year, an increase of 5.1%. Store payroll as a percentage of sales contributed 3.1% of the 5.1% increase. Similar to this year’s second quarter results, there were actually less payroll dollars spent per store during the first six months of this year than in the first six months of last year. This year’s increase as a

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percent of sales reflects the deleverage caused by same store sales declines as well as a greater number of stores open this year. The overall reduction in selling dollars spent in the first six months of this year reflects the scaling back of advertising expenditures and lower merchandise delivery costs, slightly offset by an increase in expenses related to field management positions. Dollar savings in general and administrative expenses were due to a substantial reduction this year in accrued bonus expense as well as payroll savings resulting from the temporary CEO vacancy and the elimination of a number of other key administrative positions.

Interest income, net, was $0.8 million for the six months ended August 2, 2003, compared to $1.9 million for the same six months last year, a decrease of $1.1 million. This decrease was due to a reduction in market interest rates on the invested balance, as well as to a reduction in the invested balance compared to the same period in the prior year.

The income tax provision reflected an $11.8 million benefit for the six months ended August 2, 2003 compared to a $7.4 million charge for the six months ended August 3, 2002. The effective income tax rate for the six months of this year was 35.0%, compared to the 37.5% running rate of the prior year six months. The year-over-year reduction in the effective tax rate reflects an expectation that tax exempt interest income and charitable deductions of inventory will be a higher proportion of full year net income or loss than similar expectations at the end of the second quarter last year.

Based on the factors noted above, the net loss was $21.9 million or $0.74 per diluted share for the six months ended August 2, 2003 compared to net income of $12.4 million or $0.39 per diluted share for the six months ended August 3, 2002, a decrease of $34.3 million. This represents a net loss of 8.8% of sales for the six months this year compared to a net income of 4.1% of sales for the same six months last year.

Liquidity and Capital Resources

Working capital at August 2, 2003 was $56.5 million compared to $64.5 million at February 1, 2003, a decrease of $8.0 million. This decrease in working capital was primarily due to an increase in merchandise payables, net of an increase in inventory, and a reduction in prepaid expenses, partially offset by an increase in short-term investments and the income tax receivable.

Net cash provided by operating activities for the first six months of fiscal 2003 was $6.9 million, compared to $8.8 million in the first six months of last year. The $1.9 million decrease reflects a $34.3 million decrease in earnings compared to the six months of the prior

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year, offset by a number of items. These offsets include an increase of nearly $3.1 million in non-cash depreciation and amortization expense, a reduction in prepaid rents due to the timing of the rent check distribution, and a $21.2 million increase in payables, reflecting the timing of large inventory receipts near the end of the quarter.

The cash and investment balance at the end of the quarter was $89.9 million, $4.9 million less than it was at February 1, 2003. This reflects the decline in sales over the last six months and expenditures for capital improvements.

Capital improvements totaled $11.0 million during the first six months of this year, compared to $29.5 million during the same period in the prior year. The investment of $11.0 million reflects costs for the 26 new stores and 17 remodels completed during the first two quarters of the year, as well as remodels and new stores under construction for third quarter openings. We expect capital improvements for the remainder of fiscal 2003 to be no more than $4 million.

In September 1998, our Board of Directors authorized the repurchase of up to 20% of the outstanding shares of our Class A common stock. From this authorized plan, 3,077,100 shares (split adjusted) were repurchased at a cost of $20.3 million. These repurchased shares were reflected as Treasury Stock in our consolidated balance sheets, until they were retired on December 2, 2002, as authorized by the Board of Directors. On October 1, 2002, our Board of Directors authorized the repurchase of up to 5.4 million shares of our outstanding Class A common stock. This amount included the remaining shares previously authorized for repurchase by the Board of Directors. During fiscal 2002, the Company repurchased 947,400 shares for $8.2 million and retired these shares. An additional 124,500 shares were repurchased for $0.9 million in the first quarter of fiscal 2003 and these shares were also retired. As of August 2, 2003, there were 4,328,100 shares remaining that are authorized for repurchase.

We have a revolving line-of-credit arrangement with Bank of America, N.A. under which we may borrow up to a maximum of $50 million on a revolving basis through July 1, 2004. At August 2, 2003, there were no outstanding borrowings under the credit arrangement. There were $18.1 million in open letters of credit related to imported inventory orders as well as standby letters of credit totaling $0.9 million. As of August 2, 2003, we were in compliance with all financial covenants of the credit arrangement. We invest our excess funds in short-term investment grade money market funds, investment grade municipal and commercial paper and U.S. Treasury and agency obligations. Assets listed as long-term investments on our balance sheet consist of high credit quality

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municipal and corporate bonds with maturities extending no further than three years out.

We believe that our working capital and cash flows from operating activities will be sufficient to meet our operating and capital requirements in the foreseeable future.

Seasonality and Inflation

Our business is seasonal in 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 a large percentage of sales volume. For the past three fiscal years, the Christmas and back-to-school seasons together accounted for an average of approximately 30% of our annual sales, after adjusting for sales increases related to new stores. We do not believe that inflation has had a material effect on the results of operations during the past three years. However, we cannot assure you that our business will not be affected by inflation in the future.

Commitments and Contingencies

Our principal contractual obligations consist of minimum annual rental commitments under non-cancelable leases for our stores, our corporate office, warehouse facility, automobiles, computer equipment and copiers. At August 2, 2003, our contractual obligations under these leases were as follows (in thousands):

	Payments Due By Period
Contractual Obligations	Total	Less Than 1 Year	1–3 Years	4–5 Years	After 5 Years
Operating leases	$462,500	$70,600	$186,600	$97,700	$107,600

Our principal commercial commitments consist of open letters of credit, related primarily to imported inventory orders, secured by our revolving line-of-credit arrangement. At August 2, 2003, our contractual commercial commitments under these letters of credit arrangements were as follows (in thousands):

		Amount of Commitment Expiration Per Period
Other Commercial Commitments	Total Amounts Committed	Less Than 1 Year	1–3 Years	4–5 Years	Over 5 Years
Lines of credit	$19,000	$19,000	—	—	—

We do not maintain any long-term or exclusive commitments or arrangements to purchase merchandise from any single supplier.

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Statement Regarding Forward-Looking Disclosure

Certain sections in this Quarterly Report on Form 10-Q, including the preceding “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent our expectations or beliefs concerning future events.

Forward-looking statements include statements that are predictive in nature, which depend upon or refer to future events or conditions, which include words such as “believes,” “plans,” “anticipates,” “estimates,” “expects” or similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects, and possible future actions, which may be provided by our management, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our company, economic and market factors and the industry in which we do business, among other things. These statements are not guaranties of future performance and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Actual events and results may differ from those expressed in any forward-looking statements due to a number of factors. Factors that could cause our actual performance, future results and actions to differ materially from any forward-looking statements include, but are not limited to, those discussed in Exhibit 99.1 attached to this report and noted elsewhere in this report. We strongly urge you to review and consider the risk factors set forth in Exhibit 99.1.

New Accounting Pronouncements

In November 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a material impact on our consolidated results of operations, financial position or cash flows.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force (EITF) Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs

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Incurred in a Restructuring). “SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. We adopted the provisions of SFAS 146 for exit or disposal activities initiated after December 31, 2002.

In November 2002, the FASB issued (FIN) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others,” an interpretation of FASB Statements No. 5, 57 and 107, and rescission of FIN 34, “Disclosure of Indirect Guarantees of Indebtedness of Others.” FIN 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The provisions of the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of such interpretation did not have a material impact on our results of operations or financial position.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123.” This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirement of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 is effective for fiscal years ending after December 15, 2002. We have determined not to adopt the fair value based method of accounting for stock-based employee compensation, but did adopt the additional disclosure requirements of SFAS 148 in fiscal 2002.

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities,” an interpretation of ARB No. 51. FIN 46 requires that variable interest entities be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. FIN 46 also requires disclosures about variable interest entities that companies are not required to consolidate but in which a company has a

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significant variable interest. The consolidation requirements of FIN 46 will apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements will apply to entities established prior to January 31, 2003 in the first fiscal year or interim period beginning after June 15, 2003. The disclosure requirements will apply in all financial statements issued after January 31, 2003. We believe the adoption of FIN 46 will have no impact on our results of operations or financial position, as we have no interests in variable interest entities.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity,” which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope, which may have previously been reported as equity, as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We do not believe that the adoption of SFAS No. 150 will have a significant impact on our results of operations, financial position or cash flows.

Item 3— Quantitative and Qualitative Disclosures About Market Risk

To the extent that we borrow under our credit facility, we would be exposed to market risk related to changes in interest rates. At August 2, 2003, no borrowings were outstanding under our credit facility. We are not a party to any derivative financial instruments. However, we are exposed to market risk related to changes in interest rates on this investment grade interest-bearing securities which we invest. If there are changes in interest rates, those changes would affect the investment income we earn on those investments.

Item 4— Controls and Procedures

Disclosure Controls and Internal Controls

Our disclosure controls and procedures (as defined in Rule 13a-15(e) under Exchange Act) (“Disclosure Controls”) are controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this quarterly report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that this information is accumulated and

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communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our internal control over financial reporting (“Internal Controls”) is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, with the objective of providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal Controls also include policies and procedures that:

1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of our company;

2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of management and directors of our company; and

3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the financial statements.

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our Disclosure Controls or Internal Controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. Moreover, the design of any system of controls is also based in part upon certain assumptions about the likelihood of future events.

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Not withstanding the foregoing limitations, we believe that our Disclosure Controls and Internal Controls provide reasonable assurances that the objectives of our control system are met.

Quarterly evaluation of the Company’s Disclosure Controls

As of August 2, 2003, the last day of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our Disclosure Controls. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded, subject to the limitations noted above, that:

• the design and operation of our Disclosure Controls were effective to ensure that material information related to our company which is required to be disclosed in reports filed under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

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PART II—OTHER INFORMATION

Item 1—Legal Proceedings.

We are not party to any material legal proceedings. We anticipate that we will be subject to litigation (and arbitration) in the ordinary course of business.

Item 2—Changes in Securities. Not Applicable

Item 3—Defaults Upon Senior Securities. Not Applicable

Item 4—Submission of Matters to a Vote of Security Holders.

We held our most recent Annual Meeting on May 29, 2003. Following is a brief description of the proposal voted upon at the meeting and the tabulation of the voting therefore:

Proposal—Election of Directors.

	Number of Votes
Nominee	For	Withheld	Broker Non-Votes
1. George H. Benter, Jr.	32,659,871	630,284	0
2. Barry J. Entous	32,659,871	630,284	0
3. Stephen Gross	32,956,505	333,650	0
4. Walter F. Loeb	32,956,505	333,650	0
5. Wilfred Posluns	32,659,871	630,284	0
6. Alan Siegel	32,659,871	630,284	0
7. Irving Teitelbaum	27,456,654	5,833,501	0

Item 5—Other Information. Not Applicable

Item 6 (a)—Exhibits.

10.1	Settlement Agreement, dated August 8, 2003 between the Company and Kathy Bronstein
10.2	Employment Agreement, dated August 25, 2003 between the Company and Allan D. Haims
31.1	Certification of the Chief Executive Officer

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	filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Factors Affecting Future Financial Results

Item 6 (b)—Reports on Form 8-K.

On May 12, 2003, we filed a current report on Form 8-K reporting that we issued a press release regarding net sales for the four-week and thirteen-week periods ended May 3, 2003. We also announced a range for expected financial results for the first quarter of fiscal 2003 as well as plans to release final first quarter earnings results on May 22, 2003.

On May 23, 2003, we filed a current report on Form 8-K reporting final financial results for the first quarter of fiscal 2003.

On May 30, 2003, we filed a current report on Form 8-K reporting that we issued a press release announcing the appointment of Peter Whitford as Chief Executive Officer of our Company.

On July 11, 2003, we filed a current report on Form 8-K reporting that we issued a press release regarding net sales for the five-week period ended July 5, 2003. We also announced a range for expected financial results for the second quarter of fiscal 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		THE WET SEAL, INC.       (Registrant)
Date:	September 12, 2003	/s/    PETER D. WHITFORD
		Peter D. Whitford Chief Executive Officer (Principal Executive Officer)

Date:	September 12, 2003	/s/    WILLIAM B. LANGSDORF
		William B. Langsdorf Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-10.1

EXHIBIT 10.1

SETTLEMENT AGREEMENT AND GENERAL RELEASE

This Settlement Agreement and General Release (“Agreement”) is entered into by and between Kathy Bronstein (“Bronstein”), on the one hand, and The Wet Seal, Inc. (“the Company”), on the other hand. Bronstein and the Company are referred to collectively as “the Parties.”

This Agreement is made with reference to the following facts:

A. Bronstein was an employee of the Company until at least February 5, 2003. On that date, Bronstein was relieved of her duties. The Company contends that Bronstein remained an employee of the Company until May 10, 2003, when her employment was effectively terminated. Bronstein acknowledges that she was paid as an employee through May 10, 2003.

B. Bronstein has been and is a securities holder of the Company, but, at all times, owned and owns less than ten (10) percent of the outstanding shares or voting rights of The Company.

C. Bronstein has made and is making various claims against the Company, Irving Teitelbaum and Susan O’Toole, including, without limitation: wrongful termination; retaliatory discharge; gender discrimination; breach of contract; defamation; humiliation; emotional distress; invasion of privacy; fraud; and misrepresentation.

D. Bronstein is seeking various damages against the Company, Irving Teitelbaum and Susan O’Toole, including, without limitation, damages for: lost future salary; lost future bonuses; injury to reputation; and emotional distress.

E. The Company has a duty to indemnify Irving Teitelbaum and Susan O’Toole against Bronstein’s claims, including defense costs.

F. Among other reasons, the Parties want to settle this matter to avoid prosecution and defense costs, which would be significant. The Parties desire to avoid litigation and settle all the disputes and differences between them.

Based on the foregoing representations, the Parties agree as follows:

1. No Admission of Liability.

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The Company on behalf of itself and on behalf of the Company Releasees (as defined in Paragraph 3 hereof) and Irving Teitelbaum and Alan Siegel, on the one hand and Bronstein on behalf of herself and on behalf of the Bronstein Releasees (as defined in paragraph 3 hereof) on the other hand, have denied and continue to deny all of the material allegations made by the Parties, and deny and continue to deny that they (the Company Releasees, Irving Teitelbaum, Alan Siegel or the Bronstein Releasees) are liable to each other in any amount whatsoever, or at all.

2. Consideration.

(a) In consideration of the covenants undertaken and releases given herein by Bronstein, the Company shall pay to Bronstein and do the following:

(i) The Company shall by or before the later of July 18, 2003, or the eighth day following Bronstein’s execution of this Agreement, transfer to Bronstein the Sun Life of Canada Universal Life policy number 02003995 (the “Policy”) which had been acquired by the Company to fund its obligation to Bronstein under the Company’s Supplemental Executive Retirement Plan (“SERP”). The Company represents that it has full authority to effect a transfer of all value and rights in the Policy to Bronstein and that the Policy being transferred to Bronstein has a current value of at least $940,403.53 (“Policy Account Value”) and a present surrender value of at least $915,657.78. The Company will take federal and state withholdings based upon the Policy Account Value of the SERP interest being transferred to Bronstein from the payment that is to be made to Bronstein pursuant to Paragraph 2(a)(iii) of this Agreement. Other than the transfer of the Policy contemplated above, Bronstein acknowledges that she has no other interests in and has no entitlement to or expectation of receiving any other benefits, payments or things of value pursuant to or arising out of the SERP. Bronstein acknowledges that, upon the transfer of the ownership of the Policy from the Company to her as provided for in this Paragraph 2(a)(i), she hereby relinquishes, waives and forfeits any other rights or entitlements to any other benefits, payments, premium payments or things of value pursuant to or arising out of or relating to the SERP and that her status as a participant in or beneficiary of the Company’s SERP has been terminated;

(ii) The Company shall by or before the later of July 18, 2003, or the eighth day following Bronstein’s execution of this Agreement, vest and distribute to Bronstein the remaining previously unvested portions of Bronstein’s 2001 stock bonus and 2002 stock bonus awards and shall award, vest and distribute a 2003 stock bonus. As a result, the Company shall distribute to Bronstein a total of 4,422 shares of stock (inclusive of the 2003 stock bonus award) in the Company and such shares comprise all outstanding 2001, 2002 and 2003 stock bonus awards. The Company will take federal and state withholdings based upon the value of 4,442 shares on the later of July 18, 2003, or the eighth day following Bronstein’s execution of this Agreement, from the payment that is to be made to Bronstein pursuant to Paragraph 2(a)(iii) of this Agreement. Bronstein acknowledges that, except as provided in this

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Paragraph 2(a)(ii), she has no further right to receive any further stock bonus awards or shares;

(iii) The Company shall by or before July 18, 2003, or the eighth day following Bronstein’s execution of this Agreement, pay to Bronstein the gross amount of Two Million One Hundred Sixty-Nine Thousand Dollars ($2,169,000), less federal and state withholdings applicable to the value of the Stock Bonus Shares being provided to Bronstein pursuant to Paragraph 2(a)(ii) of this Agreement and the Policy Account Value being transferred to Bronstein pursuant to Paragraph 2(a)(i) of this Agreement. The Company will issue to Bronstein a form 1099 reflecting the payment of Two Million One Hundred Sixty-Nine Thousand Dollars ($2,169,000) made to Bronstein pursuant to this Paragraph 2(a)(iii).

(iv) The Company shall reimburse Bronstein for her attorney’s fees and costs up to a maximum of One Hundred Twenty-Five Thousand Dollars ($125,000) within thirty (30) days of presentation of such bills to the Company. The Company will issue to Bronstein a form 1099 reflecting the payment of One Hundred Twenty-Five Thousand Dollars ($125,000) to Bronstein’s attorneys pursuant to this Paragraph 2(a)(iv);

(v) Notwithstanding the terms of any stock option agreements, grants or stock option plans to the contrary, Bronstein shall be permitted to exercise any previously vested unexercised stock options granted to her by the Company until June 1, 2005. The parties acknowledge that as of May 10, 2003, Bronstein had 405,000 vested, unexercised stock options. The parties further acknowledge that such vested unexercised options would have been forfeited had they not been exercised by or before May 10, 2003. Bronstein acknowledges that any stock options that had previously been granted to her which had not vested on or before May 10, 2003, have terminated, in their entirety. Bronstein acknowledges that, pursuant to this paragraph 2(a)(v) and paragraph 3(d) herein, she hereby relinquishes and waives any claims that she has or may have had with respect to any such stock options which had not vested on or before May 10, 2003. Other than extending the exercise date of the previously vested, unexercised options as set forth above, nothing herein modifies or otherwise changes the operative stock plans, grants or stock option agreements.

(vi) The Company shall permit Bronstein to continue to use the Company 60% Discount Card for a period of five (5) years commencing July 1, 2003, at which time the Discount Card must be returned to the Company. The utilization of the Discount Card shall be subject to the Company’s policies and requirements pertaining to the utilization of a Discount Card by executive-level employees. If, at any time Bronstein fails to abide by the above-referenced conditions, the Discount Card shall be forfeited and must be immediately returned to the Company.

(b) Bronstein acknowledges and agrees that the Company is not obligated to provide the above-referenced consideration to her under its normal policies and procedures. Bronstein also acknowledges and agrees that, except as

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expressly provided in this Paragraph, that no other monetary payments or consideration shall be provided to her in exchange for entering into this Agreement. Bronstein acknowledges and agrees that she has previously received all salary, bonuses, vacation pay, and any other forms of compensation in connection with her services to the Company through the date of this Agreement. Bronstein acknowledges that the payments and things of value being provided to her pursuant to this Paragraph 2 are in satisfaction of Bronstein’s claims for loss of future salary and bonuses, emotional distress and loss of reputation damages Bronstein claims to have suffered as a result of her termination from the Company and the events pertaining thereto.

(c) It is understood and agreed that Bronstein is solely responsible for federal and/or state income tax due on the settlement amounts paid and the consideration provided pursuant to this Agreement. The Company makes no representations or warranties regarding Bronstein’s tax obligations or liabilities concerning the settlement amount. Bronstein hereby agrees that in the event that, as a result of the payments and consideration provided to Bronstein pursuant to this Paragraph 2, any taxing authority or other governmental entity demands additional monies from the Company for penalties, or for those monies which such taxing authority or governmental entity claims should have been withheld from the payments and consideration provided to Bronstein pursuant to this Agreement, Bronstein shall hold the Company harmless and shall promptly indemnify the Company for any monies which the Company becomes obligated to pay, including without limitation, for its attorneys fees, costs, penalties or withholding as described above to any governmental entity or otherwise as a result of such a demand and/or any resulting litigation arising out of, or related to, the payments and consideration being provided to Bronstein pursuant to Paragraph 2 of this Agreement provided however, that Bronstein’s obligation to indemnify the Company for its attorneys fees and costs shall not be applicable to the extent that such fees or costs are allocable to a claim by any taxing authority or other governmental entity that the withholdings taken as a result of the consideration paid pursuant to Paragraphs 2(a)(i) and 2(a) (ii) was less than required under applicable law (based upon the value of consideration paid under Paragraphs 2(a)(i) and 2(a)(ii)). The above-stated indemnity does not pertain to the Company’s share of contributions for social security (including Medicare and OASDI) and FUTA.

3. Complete Release of All Claims, Known or Unknown.

(a) The “Company Releasees” as used in this Agreement is defined to mean, individually and collectively, the Company, all of its divisions, all of its parent, successor, subsidiary, and affiliated companies and entities, and each of its or their officers (including but not limited to Irving Teitelbaum, Alan Siegel and Susan O’Toole), directors (including but not limited to Irving Teitelbaum and Alan Siegel), shareholders, partners, limited partners, agents, attorneys, employees, consultants, representatives, licensees, vendors, and assigns, past and present and each of them.

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(b) The “Bronstein Releasees” as used in this Agreement is defined to mean Bronstein, her heirs and attorneys, and each of them.

(c) “Released Claims” as used in this Agreement is defined to mean any and all charges, complaints, actions, claims, accusations, promises, liabilities, demands, debts, damages, losses, accounts, arbitrations, obligations, agreements, expenses and causes or potential causes of action, past, present, or future, known or unknown, suspected or unsuspected, at law or in equity or in arbitration, of any kind or nature whatsoever, other than obligations expressly undertaken in the Agreement.

(d) Bronstein hereby knowingly, voluntarily, irrevocably and unconditionally expressly releases and waives, and absolutely and forever discharges the Company Releasees, individually and collectively, from any and all Released Claims which Bronstein has or claims to have, now or hereafter, against any or all of the Company Releasees, arising out of any and all wrongful acts, acts or omissions occurring before the complete execution of this Agreement. As part of these general and special releases, and not by way of limitation, Bronstein hereby knowingly, voluntarily, irrevocably and unconditionally expressly releases and waives, and absolutely and forever discharges, any and all Released Claims which Bronstein has or claims to have, now or hereafter, against the Company Releasees, individually and collectively, relating to or arising out of any foreign, federal, state, or local constitution, statute, ordinance, regulation, or common law including, but not limited to, any Released Claims arising under or relating to Title VII of the Civil Rights Act of 1964; the Equal Pay Act; the Americans With Disabilities Act; the Family and Medical Leave Act; the Employee Retirement Income Security Act; the Age Discrimination In Employment Act; the California Fair Employment and Housing Act; all provisions of the California Labor Code; all provisions of the California Government Code; the Orders of the California Industrial Welfare Commission regulating wages, hours, and working conditions; any other foreign, federal, state, or local laws, common law or case law prohibiting employment discrimination or otherwise regulating employment; any Claim or Claims for discrimination, failure to prevent discrimination, retaliation, failure to prevent retaliation, harassment, failure to prevent harassment, assault, battery, misrepresentation, fraud, deceit, invasion of privacy, breach of contract, breach of quasi-contract, breach of implied contract, accounting, wrongful or constructive discharge, breach of the covenant of good faith and fair dealing, libel, slander, negligent or intentional infliction of emotional distress, violation of public policy, negligent supervision, negligent retention, negligence, or interference with business opportunity or with contract; and any Claim or Claims for vacation pay, severance pay, rights under any long-term incentive plan or stock option plan, stock grants or stock option grants, or the exercise thereof, any bonus or similar payment, sick leave, holiday pay, pension, retirement, retirement bonus, retirement plans including, without limitation, the Supplemental Executive Retirement Plan (SERP), insurance including, without limitation, health, medical, life, or disability insurance, reimbursement of health or medical costs; provided, however, that this release shall not affect any rights the Parties have been granted pursuant to this Agreement and provided further that this release shall not apply to the claims specified in Paragraph 3(f) below.

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(e) The Company on behalf of itself, and Irving Teitelbaum and Alan Siegel, each individually, hereby knowingly, voluntarily, irrevocably and unconditionally expressly release and waive, and absolutely and forever discharge the Bronstein Releasees, individually and collectively, from any and all Released Claims which the Company, Irving Teitelbaum and Alan Siegel have or claim to have, now or hereafter, against any or all of the Bronstein Releasees, arising out of any and all wrongful acts, acts or omissions occurring before the complete execution of this Agreement. As part of these general and special releases, and not by way of limitation, the Company, Irving Teitelbaum and Alan Siegel hereby knowingly, voluntarily, irrevocably and unconditionally expressly release and waive, and absolutely and forever discharge, any and all Released Claims which each of them has or claims to have, now or hereafter, against the Bronstein Releasees, individually and collectively, relating to or arising out of any foreign, federal, state, or local constitution, statute, ordinance, regulation, or common law including, but not limited to, any Released Claims arising under or relating to the Age Discrimination In Employment Act; Title VII of the Civil Rights Act of 1964; the Equal Pay Act; the Americans With Disabilities Act; the Family and Medical Leave Act; the Employee Retirement Income Security Act; the California Fair Employment and Housing Act; all provisions of the California Labor Code; all provisions of the California Government Code; the Orders of the California Industrial Welfare Commission regulating wages, hours, and working conditions; any other foreign, federal, state, or local laws, common law or case law prohibiting employment discrimination or otherwise regulating employment; any Claim or Claims for discrimination, failure to prevent discrimination, retaliation, failure to prevent retaliation, harassment, failure to prevent harassment, assault, battery, misrepresentation, fraud, deceit, invasion of privacy, breach of contract, breach of quasi-contract, breach of implied contract, accounting, wrongful or constructive discharge, breach of the covenant of good faith and fair dealing, libel, slander, negligent or intentional infliction of emotional distress, violation of public policy, negligent supervision, negligent retention, negligence, or interference with business opportunity or with contract; and any Claim or Claims for vacation pay, severance pay, rights under any long-term incentive plan or stock option plan, stock grants or stock option grants, or the exercise thereof, any bonus or similar payment, sick leave, holiday pay, pension, retirement, retirement bonus, retirement plans including, without limitation, the Supplemental Executive Retirement Plan (SERP), insurance including, without limitation, health, medical, life, or disability insurance, reimbursement of health or medical costs; provided, however, that this release shall not affect any rights the Parties have been granted pursuant to this Agreement and provided further that this release shall not apply to the claims specified in Paragraph 3(f) below.

(f) The release and waiver of claims set forth in this Paragraph 3 hereinabove shall not be applicable to claims (i) made by a third party against Bronstein solely in her capacity as an officer and/or director of the Company, such claims being brought in the right of the Company as a derivative action and (ii) by Bronstein against the Company pursuant to Delaware law for indemnification from

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claims brought against her by a third party solely in her capacity as an officer and/or director of the Company.

(g) The Parties represent that they have not filed any complaints, lawsuits, charges, arbitrations and/or other claims against each other or any party released pursuant to this Paragraph 3 with any court, governmental agency or arbitration authority or organization.

4. ADEA Release.

(a) Bronstein expressly acknowledges and agrees that this Agreement includes a waiver and release of all claims which Bronstein has or may have under the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. § 621 et seq. (“ADEA”). The following terms and conditions apply to, and are part of, the waiver and release of ADEA claims under this Agreement.

(b) The waiver and release of claims under the ADEA contained in this Agreement does not cover rights or claims that may arise after the date on which Bronstein signs this Agreement. Bronstein has been advised to consult a lawyer before signing this Agreement, and has done so. Bronstein is granted twenty-one (21) days after she is presented with this Agreement to decide whether or not to sign this Agreement. Bronstein will have the right to revoke the waiver and release of claims under the ADEA within seven (7) days of signing this Agreement, and this Agreement, in its entirety, shall not become effective or enforceable until this revocation period has expired without Bronstein having exercised such right of revocation. Bronstein hereby acknowledges and agrees that she is knowingly and voluntarily waiving and releasing her rights and claims only in exchange for consideration (something of value in addition to anything of value to which she already is entitled).

5. Unknown Claims.

The Parties and Irving Teitelbaum and Alan Siegel expressly waive and relinquish all rights and benefits afforded by Section 1542 of the California Civil Code, and do so understanding and acknowledging the significance and consequence of such specific waiver of Section 1542. Section 1542 of the California Civil Code states as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

Thus, notwithstanding the provisions of Section 1542, and for the purpose of implementing a full and complete release and discharge of Bronstein Releasees and the Company Releasees, the Parties and Irving Teitelbaum and Alan Siegel expressly

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acknowledge that this Agreement is intended to include in its effect, without limitation, any and all Claims which the Parties and Irving Teitelbaum and Alan Siegel do not know or suspect to exist in their favor at the time of execution hereof, and that this Agreement contemplates the extinguishment of such Claim or Claims.

6. Workers Compensation.

Bronstein expressly acknowledges that she has not, to her knowledge, suffered from any illness or injury arising out of and in the course of her employment with The Company that would be compensable under the Workers’ Compensation Act (the “Act”), that she has not filed and has no present intention to file any claim against The Company under the Act, and that she represents that she will not file or otherwise assert any workers’ compensation claim against The Company or any of its affiliated corporate entities seeking to remedy an injury or illness which allegedly involves her psyche, stress, alleged emotional distress, damage or harm to her reputation or other similar harm relating to or impacted or caused by Bronstein’s employment or termination of employment and related acts and events. The Parties agree that this is a material representation and warranty of this Agreement. Accordingly, the Company has the right to assert the full value of the monetary payments being made to Bronstein under Paragraph 2(a)(iii) and (iv) above as an offset and/or credit against any future workers’ compensation award or settlement.

7. Cessation of Employment.

Bronstein represents, understands, and agrees that she shall not knowingly, at any time, apply for, seek, or accept any employment with, and waives any right to employment with, the Company, any division thereof, or any of its parent, successor, subsidiary, or affiliated companies or entities.

8. Return of Property.

(a) Bronstein agrees to return immediately to the Company any and all Company Property in her possession, custody, or control, or in the possession, custody, or control of her legal counsel, family, friends, agents, or representatives. For purpose of this Agreement, Company Property includes, but is not limited to, all records, files, drawings, documents, models, equipment, automobiles, prototypes, designs or any other written or electronically stored information relating to the Company’s business and any and all property (in whatever form or medium) of the Company. Bronstein shall certify, in writing, her compliance with this provision on or before the later of July 18, 2003 or the eighth day following Bronstein’s execution of this Agreement. Notwithstanding the above, Bronstein shall return the Company automobile in her possession to the Company on or before July 18, 2003 or the eighth day following Bronstein’s execution of this Agreement. Bronstein hereby acknowledges that she had no past and has no present or future right, title or interest in any of the tangible assets and/or intellectual property rights (including, but not limited to,

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trademarks or copyrights) associated with or related to the Company, its divisions (including without limitation, Arden B) or any other affiliated entities, and that any and all such assets and/or rights are owned, exclusively by the Company.

(b) The Company represents that, to its best knowledge, it has already returned or, no later than the eighth day following Bronstein’s execution of this Agreement, it shall return all of Bronstein’s personal property in the Company’s possession (to the extent the Company is aware that such personal property is in its current possession) to her and that it will not open mail received by it marked “personal” and addressed to her but will forward it to her unopened by U.S. Mail to the address Bronstein has listed on this Agreement. Any other mail not so marked but intended for Bronstein personally will be screened by the Company to determine if it is intended for Bronstein personally, and if it is, such will be mailed to her by U.S. Mail to the address Bronstein has listed on this Agreement. An inadvertent failure to return such items shall not constitute a breach of this Agreement.

9. Non-Disclosure/Solicitation.

(a) Bronstein acknowledges that during her service and employment with the Company that she has been privy and made party to confidential information, including but not limited to knowledge or data relating to the Company and its affiliates and their businesses and investments, information regarding Company vendors, Company employees, the Company’s strategic and business plans, and analysis of competitors (“Confidential Information”) and Trade Secrets (as defined below). Following the Effective Date, Bronstein shall hold, for the benefit of the Company, all Trade Secrets and Confidential Information. Bronstein shall not, without the prior written consent of the Company or as may otherwise be required by law or any legal process (in which case Bronstein shall use her reasonable best efforts in cooperating with the Company in obtaining a protective order against disclosure by a court of competent jurisdiction), communicate or divulge any such Trade Secrets or Confidential Information to anyone other than the Company and those designated by the Company. For purposes of this Agreement, “Trade Secrets” shall mean all information, without regard to form, including, but not limited to, technical or non-technical data or reports, formulae, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, actual or potential legal claims by or against the Company, business plans or projects, product plans, distribution lists or lists or information pertaining to actual or potential customers, advertisers or suppliers which is not commonly known by or available to the public or any other information or data deemed to be a Trade Secret under applicable law.

(b) Bronstein agrees that should she receive any inquiry or service of process seeking Confidential Information and/or Trade Secrets as described in sub-paragraph (a) of this Paragraph, Bronstein shall notify the Company within two (2) business days and will cooperate with the Company with respect to any such inquiries or service of process.

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(c) To protect the goodwill of the Company and the Company’s legitimate business interests and in consideration of the payments made to Bronstein hereunder, for a period of two years following the date she executes this Agreement (the “Restricted Period”), Bronstein shall not, on her behalf or others, directly or indirectly, solicit the suppliers or Employees (as defined below) of the Company or any of its affiliates to terminate their relationship with the Company or its affiliates (or to modify such relationship in a manner that is adverse to the interests of the Company or its affiliates), or to violate any valid contracts they may have with the Company or its affiliates. In addition, during the Restricted Period, Bronstein shall not, without the prior written permission of the Company, directly or indirectly, employ or retain, or have or cause any other person or entity to employ or retain any Employee of the Company or any affiliates. For purposes of this Agreement, the term “Employee” shall mean any employee of, or individual who provides personal services to, the Company or any affiliate.

10. No Attorneys’ Fees or Costs.

Except as otherwise provided in Paragraphs 2 and 14 of this Agreement, the parties to this Agreement agree to bear their own costs and attorneys’ fees in connection with this Agreement and the matters released in this Agreement.

11. Further Cooperation.

The Parties agree that, as part of the resolution of all disputes between them, they will do the following:

(a) Commencing on June 16, 2003 and for a period of two (2) years thereafter, Bronstein agrees to cooperate fully with and assist the Company in regard to the prosecution or defense of claims made by the Company against Third Parties or against Company by Third Parties. The duty of cooperation includes the duty to assist the Company and the Company’s attorneys and to participate in any meetings that may be necessary for purposes of obtaining information that may be utilized with respect to potential claims, claims, or litigation between the Company, on the one hand, and any Third Party, on the other hand. Moreover, this duty to cooperate also includes, but is not limited to, Bronstein’s prompt and cooperative attendance and participation in any depositions, any court or administrative agency matter, or any other proceedings pertaining to Company, without the necessity of formal subpoenas. Bronstein will be reimbursed for all such requested time at the rate of $400 per hour, and that plus any expenses necessarily related to such time, will be reimbursed within 15 days of submission to the Company. For purposes of this Paragraph 11(a), Third Parties are defined as any persons or entities other than the Bronstein Releasees.

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(b) Commencing on June 16, 2003 and for a period of two (2) years thereafter, the Company agrees to cooperate fully with and assist Bronstein in regard to the prosecution or defense of claims made by Bronstein against Third Parties or against Bronstein by Third Parties. The duty of cooperation includes the duty to assist Bronstein and Bronstein’s attorneys and to participate in any meetings that may be necessary for purposes of obtaining information that may be utilized with respect to potential claims, claims of litigation between Bronstein on the one hand and any Third Party on the other hand. Moreover, this duty to cooperate also includes, but is not limited to, the Company’s prompt and cooperative attendance and participation in any depositions, any court or administrative agency matter, or any other proceedings pertaining to Bronstein, without the necessity of formal subpoenas. For purposes of this Paragraph 11(b), Third Parties are defined as any persons or entities other than the Company Releasees. Notwithstanding the above, if any individual who is within the category of the Company and the Releasees brings an action against the Company and Bronstein, such person shall be included within the definition of Third Parties for purposes of this Paragraph 11(b).

(c) Bronstein agrees not to voluntarily cooperate with (1) any person or entity who may request or make any inquiries, either formally or informally, concerning any information pertaining to the Agreement, matters or issues relating to the Agreement, matters or issues between the Parties, or matters or issues pertaining generally to the Company; or (2) any person or entity who is contemplating, has undertaken, or is seeking to assert any legal rights, claims, or defenses against the Company, in any forum whatsoever, unless and except where compelled to do so by court order. If Bronstein or Bronstein’s counsel is so contacted by any person or entity as described above, Bronstein shall, within five business days thereafter, contact counsel for the Company, Adam Levin or Larry Drapkin of Mitchell Silberberg & Knupp, 11377 W. Olympic Boulevard, Los Angeles, California 90064, or any other counsel hereinafter designated by the Company, and advise such counsel of the details pertaining to any such contact, and provide copies of all writings pertaining thereto. Such information shall be conveyed by fax, e-mail, and mail.

(d) Bronstein and her attorney Michelle Reinglass will make themselves available and will be compensated at the rate of Three Hundred Dollars ($300) per hour, upon reasonable request by the Company, to provide information to the Company pertaining to the Company’s efforts to obtain insurance coverage with respect to the Company’s expenditures related to or arising out of Bronstein’s claims, including without limitation providing to the Company a copy of her mediation brief (submitted to David Rotman with respect to the mediation which occurred on May 30, 2003), redacted of attorney-client privileged material which pertained to, addressed, quantified or otherwise discussed Bronstein’s factual and legal claims against the Company or any other person. Such material shall be provided to counsel for the Company, Adam Levin or Larry Drapkin of Mitchell Silberberg & Knupp, 11377 West Olympic Boulevard, Los Angeles, CA 90064, within five (5) business days of receipt of payment and other consideration provided in Paragraph 2 above. The Company shall use the above-

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referenced portions of the mediation brief only for purposes of pursuing its claims against insurance carriers with respect to the claims asserted by Bronstein against the Company. If Bronstein’s attorneys are requested by the Company to provide information for the Company’s use pursuant to this Paragraph 11(d), the Company shall reimburse such counsel for the time such counsel may reasonably expend at the rate of Three Hundred Dollars ($300) per hour.

12. Non-Disclosure/Non-Disparagement.

(a) Bronstein agrees that she shall not publicize or disclose, in any manner, this Agreement, or the contents, terms, or any part of this Agreement, or any matters relating thereto, whether in writing or orally, directly or indirectly, to any person or entity whatsoever unless authorized to do so in writing by the Company or as may otherwise be required by law or any legal process (in which case Bronstein shall give the Company notice of any attempts to cause her to testify about or otherwise divulge the information subject to this Paragraph 12(a) within five (5) business days of Bronstein’s knowledge of such attempts and Bronstein shall use her reasonable best efforts in cooperating with the Company’s effort to obtain a protective order against disclosure from a court of competent jurisdiction). Bronstein agrees that she shall keep confidential any and all information concerning the facts and any legal claims which she has alleged, or could have alleged, against the Company. Except as provided in Paragraph 12(c) below, Bronstein agrees to not make any disclosure about this settlement except to say, “The dispute has been amicably resolved.” Notwithstanding the above, the Company and Bronstein shall, in good faith, attempt to reach agreement with respect to a press release that will reference and describe the amicable state of affairs between the Company and Bronstein, including, without limitation, reference to the amicable resolution of all matters between the parties.

(b) The Company agrees that it shall instruct those individuals who are officers or directors of the Company as of the date of execution of this Agreement (“Present Officers and Directors”) to not publicize or disclose in any manner this Agreement, or the contents, terms, or any part of this Agreement, or any matters relating thereto, whether in writing or orally, directly or indirectly, to any person or entity whatsoever unless authorized to do so in writing by Bronstein or as may otherwise be required by law or any legal process (in which case the Company shall give Bronstein notice of any attempts to cause it to testify about or otherwise divulge the information subject to this Paragraph 12(b) within five (5) business days of the Company’s General Counsel’s knowledge of such attempts and the Company shall use its reasonable best efforts in cooperating with Bronstein in obtaining a protective order against disclosure from a court of competent jurisdiction). Except as provided in Paragraph 12(c) below, the Company’s officers and directors cannot make any disclosure about this settlement except to say, “The dispute has been amicably resolved.”

(c) Bronstein agrees to refrain from making any statement or taking any action, directly or indirectly, that harms, impairs, impugns, interferes with,

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undermines or criticizes the Company Releasees and/or the Company Releasees’ business interests, reputation or goodwill. The Company agrees to instruct its Present Officers and Directors to refrain from making any statement or taking any action, directly or indirectly, that harms, impairs, impugns, interferes with, undermines or criticizes the Bronstein Releasees and/or the Bronstein Releasees’ business interests, reputation or goodwill, and Company will not hereafter publicize in any manner that the reason for Bronstein’s termination and/or departure was based on any alleged impropriety or misconduct on her part. Company shall not be responsible for any failure by any of its Present Officers and Directors to comply with the Company’s instructions pursuant to either Paragraph 12(b) or (e) of this Agreement.

(d) Notwithstanding Paragraph 12(a) and (b) above, the parties acknowledge and agree that Bronstein may disclose the terms of this Agreement to her legal and tax advisors, provided they agree to comply with and be bound by the provisions of this Paragraph. The parties further agree that the Company may disclose this Agreement to those of its employees, agents, tax advisors and attorneys deemed by the Company as having a need to know the terms and provisions hereof. The parties also agree that if the Company determines, in its good faith judgment, that any of the information contained in the Agreement is subject to or should be disclosed pursuant to federal or state law, including, without limitation, securities laws, the Company may direct appropriate representatives to make such disclosures.

(e) Notwithstanding anything in this Agreement to the contrary, the Parties (and their representatives, agents and employees) may consult any tax advisor regarding the tax treatment and tax structure of the transaction contemplated by this Agreement and may at any time disclose to any person, without limitation of any kind, the tax treatment and tax structure of such transaction and all materials (including opinions or other tax analysis) that are provided relating to such treatment or structure. The preceding sentence is intended to satisfy the requirements for the transaction contemplated herein to avoid classification as a “confidential transaction” in accordance with the Treasury Regulations Section 1.6011-4(b)(3) and shall be interpreted consistent with such intent. It is the Parties’ understanding that this Paragraph 12(e) shall be interpreted such that the amount of consideration, including payments, made hereunder, shall not be disclosed pursuant to this Paragraph 12(e).

(f) Notwithstanding Paragraph 12(a) and (b) above, the Parties agree and acknowledge that if any of the Parties is involved in a legal dispute with an insurance carrier pertaining to or arising out of this matter (“Carrier disputes”), then such Parties shall be authorized to disclose, for purposes of resolving, pursuing, or defending such Carrier disputes, information which otherwise may not be disclosed pursuant to the terms of Paragraph 12(a) and (b).

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13. Ownership of Claims.

The Parties represent and agree that they have not heretofore assigned or transferred, or purported to have assigned or transferred, to any person whomsoever any Claim or portion thereof or interest therein. The Parties agree to indemnify, defend, and hold harmless each other against any and all Claim or Claims based on, arising out of, or in connection with any such transfer or assignment, or purported transfer or assignment.

14. Enforcement By Arbitration.

Any dispute or controversy arising between the Company and Kathy Bronstein under or in connection with this Agreement shall be settled exclusively by arbitration in Los Angeles, California, before a retired judge affiliated with JAMS selected pursuant to JAMS selection procedures. This Agreement shall be construed according to the laws of the State of California in effect as of the date of its execution.

If any action at law or in equity, or any motion, is brought to enforce, interpret, or rescind this Agreement, the arbitrator shall award the prevailing party all of its costs in bringing, defending and prosecuting said action or motion, including its reasonable attorneys’ fees.

15. Severability.

Should any part, term, or provision of this Agreement (with the exception of the releases embodied in Paragraphs 3, 4, and 5) be declared or determined by any court or other tribunal of appropriate jurisdiction to be invalid or unenforceable, any such invalid or unenforceable part, term, or provision shall be deemed stricken and severed from this Agreement, and any and all of the other terms of the Agreement shall remain in full force and effect to the fullest extent permitted by law. The releases embodied in Paragraphs 3, 4, and 5 are the essence of this Agreement, and should any of these paragraphs be deemed invalid or unenforceable, this Agreement shall be declared null and void, and any consideration received under this Agreement shall be immediately returned to the Company.

16. Effect of Waiver of Breach.

No waiver of any breach of any term or provision of this Agreement shall be construed to be, or shall be, a waiver of any other breach of this Agreement. No waiver shall be binding unless it is in writing and signed by the party waiving the breach.

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17. Paragraph Description.

The use of headings in this Agreement is only for ease of reference. The headings have no effect and are not to be considered part or terms of this Agreement.

18. Counterpart Execution and Use of Photocopies.

This Agreement may be executed in counterparts, and each counterpart, when executed, shall have the efficacy of a signed original. Photographic and fax copies of such signed counterparts may be used in lieu of the originals for any purpose.

19. Contract Drafting.

Both parties participated in the drafting of this Agreement. Neither party, nor any party’s counsel, shall be deemed the drafter of this Agreement in any proceeding that may hereafter arise between them.

20. Notices.

For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered, sent by facsimile or when mailed by U.S. Registered or Certified Mail, return receipt request, postage pre-paid, addressed to such address and person as provided in the signature pages hereto or sent to such other address or facsimile number as each party may furnish to the other in writing from time-to-time in accordance with this Paragraph 20. In addition to sending notices as provided above, each party shall also send a courtesy copy to the counsel for the party receiving notice. For purposes of this Paragraph 20, counsel for the Company is Mitchell Silberberg & Knupp, attention Adam Levin or Larry C. Drapkin, 11377 W. Olympic Boulevard, Los Angeles, California 90064. Counsel for Bronstein is the Law Offices of Michelle A. Reinglass, 23161 Mill Creek Drive, #170, Laguna Hills, California 92653-1694.

21. Entire Agreement; No Representations.

This Agreement constitutes and contains the entire agreement and understanding between the Parties hereto, and this Agreement supersedes and replaces all prior negotiations, proposed agreements, offers, promises, and agreements, whether written or oral, express or implied, concerning any subject matters including, without limitation, all employment and/or services agreements, offer letters, offers of stock options, offers of stock grants, stock grant agreements, stock option agreements, retirement plans including, without limitation, the Supplemental Executive Retirement Plan (SERP) and the prior Settlement Agreement between the parties dated May 30, 2003. The Parties acknowledge that they have not signed this Agreement in reliance on any promise, representation, or warranty whatsoever, written or oral, express or implied, that is not contained herein. The Parties hereto further agree that any oral, implied, or written representations or modifications to this Agreement shall be of no force or effect unless agreed to in writing by each party hereto.

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PLEASE READ CAREFULLY. THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

Dated: August 8, 2003	KATHY BRONSTEIN
	/s/    KATHY BRONSTEIN
	Kathy Bronstein
	Street Address
	City, State, Zip Code
	Facsimile Number
Dated: August 8, 2003	THE WET SEAL, INC.
	By:	/s/    WALTER PARKS
	Its:	Executive Vice President and Chief Administrative Officer
	26972 Burbank
	Street Address
	Foothill Ranch, CA 92610
	City, State, Zip Code
	949-699-4743
	Facsimile Number

I agree to my individual release of the Bronstein Releasees as set forth in Paragraphs 3 (e) and 5 of this Agreement.

Dated: August 8, 2003	IRVING TEITELBAUM
	/s/    IRVING TEITELBAUM
	Irving Teitelbaum
Dated: August 8, 2003	ALAN SIEGEL
	/s/    ALAN SIEGEL
	Alan Siegel

Approved as to Form:

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Dated: August 8, 2003	LAW OFFICES OF MICHELLE A. REINGLASS
	By:	/s/    MICHELLE A. REINGLASS
		Michelle A. Reinglass
		Attorneys for Kathy Bronstein

Dated: August 8, 2003	MITCHELL, SILBERBERG & KNUPP
	By:	/s/    ADAM LEVIN
		Adam Levin
		Attorneys for The Wet Seal, Inc.

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EX-10.2

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made as of August 25, 2003 between The Wet Seal, Inc., a Delaware corporation, whose executive offices are located at 26972 Burbank, Foothill Ranch, California 92610 (“Company”), and Allan D. Haims (“Employee”), with respect to the following:

A. Company desires to employ Employee and Employee desires to be employed by Company.

NOW, THEREFORE, the parties agree as follows:

1. Position and Employment Period.

Effective August 25, 2003 (the “Effective Date”) Company shall employ Employee as President of the Wet Seal division of Company (the “Position”), and Employee shall accept such employment, on the terms and conditions set forth herein. The term of Employee’s employment with Company shall commence on the Effective Date and shall terminate on August 25, 2006, unless terminated sooner by either party in accordance with the provisions of Section 3 below (the “Employment Period”); provided that Company will give Employee at least 120 days prior written notice before August 25, 2006 if Company desires to negotiate for an extension of the Employment Period. The principal place of employment of Employee shall be at the Company’s headquarters as set forth above (or at such other location within the 35-mile radius of its current location as it may be relocated); provided that Employee may be required to travel on Company business during the Employment Period.

1.1. Duties.

Employee shall have the powers and shall perform the services and duties as may from time to time be decided upon by Company that are customarily associated with the Position. Employee shall comply with Company’s policies and rules, as they may be in effect from time to time during the term of Employee’s employment with Company, notice of which has been provided to Employee in writing. Employee further agrees that, except in accordance with Company’s personnel policies covering employee vacations, leaves and reasonable periods of illness or other incapacitation, Employee shall devote all of Employee’s business time and services to the business and interest of Company; provided that Employee may devote such time that the Employee deems appropriate for managing his own investment portfolio and may be a member of the Board of Directors of non-profit, civic or charitable organizations so long as it does not materially interfere or conflict with the Position. Employee shall perform the duties assigned to Employee to the best of Employee’s ability and in the best interests of Company.

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1.2. Reporting.

Employee will report directly to the Chief Executive Officer of the Company (“CEO”). The following employees will report directly to Employee: General Merchandise Manager, Vice President—Planning and Allocation, Vice President—Design, Vice President—Store Operations, Vice President—Marketing, and other employees as designated by Company.

1.3. Representations, Warranties and Certain Covenants.

Employee represents and warrants to Company that (i) Employee has the right to enter into this Agreement and is under no obligations or commitments, whether contractual or otherwise, that are inconsistent with Employee’s obligations under this Agreement, and (ii) the provisions of this Agreement and the performance hereof by Employee do not violate any other contracts or agreements to which Employee is a party and that would adversely affect Employee’s ability to perform Employee’s obligations hereunder. Employee will not enter into any agreement, either oral or written, that will adversely affect his ability to perform Employee’s obligations hereunder, and Employee will not use or disclose, in connection with Employee’s employment with Company, any trade secrets or other proprietary information or intellectual property in which Employee or any other individual, corporation, partnership, limited liability company, trust, association or other entity (each, a “Person”) other than Company has any right, title or interest.

Company represents and warrants to Employee that (1) Company has the right to enter into this Agreement and is under no obligations or commitments, whether contractual or otherwise, that are inconsistent with its obligations under this Agreement and (2) the provisions of this Agreement and the performance hereof by Company do not violate any other contracts or agreements to which Company is a party and that would adversely affect Company’s ability to perform its obligations hereunder.

2. Compensation.

In consideration of the services to be rendered by Employee under this Agreement:

2.1. Base Compensation.

Company shall pay to Employee a base annual salary of Three Hundred Ninety-five Thousand Dollars ($395,000) (“Base Salary”), payable in twenty-six (26) bi-weekly equal installments of Fifteen Thousand, One Hundred Ninety-two Dollars and Thirty-one Cents ($15,192.31) in accordance with Company’s customary payroll practices. The Board of Directors of Company (the “Board”) shall review Employee’s Base Salary annually and may make increases thereto in accordance with the compensation practices and guidelines of the Company. Regardless of the foregoing, the Base Salary then in effect will be increased by at least 5% each year, with the effective date of the increase for a particular year to be the date that Company generally implements salary raises for its executive officers in the ordinary course during that year (but in no event later than May 1 of each year).

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2.2. Annual Bonus.

Provided that Employee is employed as of the end of the Company’s fiscal year (January 31 of each year), Employee shall be eligible to receive a bonus (“Annual Bonus”) in an amount up to 50% of Employee’s then Base Salary, with the actual amount of the Annual Bonus for such year determined based on the same earnings per share formula used to calculate bonuses for other executive officers at Company, unless otherwise agreed by Company and Employee in writing. The Annual Bonus will be pro rated based on the number of days Employee was employed during such fiscal year and will be paid in a lump sum within 90 days of the end of such fiscal year. The Board (or a committee thereof) may increase the amount of any Annual Bonus in its sole discretion. Employee shall not be eligible for an Annual Bonus under this provision if Employee is not employed as of the end of the fiscal year for which it is awarded.

2.3. Stock Options.

(a) Subject to the approval of the Board and pursuant to and subject to the terms of the Company’s stock option plan(s), as soon as practical after the Effective Date Company will grant Employee options to purchase one hundred thousand (100,000) shares of the Company’s Class A common stock (the “Option”) under such terms and conditions as provided for under the Company’s Amended and Restated 1996 Long-Term Incentive Plan (“the Stock Option Plan”) which are not inconsistent with clause (b) below. To the maximum extent permitted under Section 422 of the Internal Revenue Code, the Options are intended to qualify as “incentive stock options.”

(b) The Option shall be granted subject to the following terms and conditions: (i) the Option shall be granted under the Company’s Stock Option Plan; (ii) the exercise price per share of each Option shall be equal to the greater of the 30-day trailing average price of the common stock from the date of grant or the closing price on the date of the grant (with the grant date as August 25, 2003); (iii) the Option shall be vested as to 33 1/3% of the shares subject to the Option on the first anniversary of the date of grant and as to an additional 33 1/3% of the shares subject to the Option on each of the second and third anniversaries of the date of grant; provided, that, the Option shall cease to vest upon the termination of Employee’s employment; (iv) the Option shall be exercisable for the ten year period following the date of grant; provided, that, upon the termination of Employee’s employment, the Option shall remain exercisable only for the period as provided in the Stock Option Plan or the Stock Option Agreement as defined herein, depending on the circumstances of such termination; and (v) each Option shall be evidenced by, and subject to, a stock option agreement whose terms and conditions are consistent with the terms hereof (the “Stock Option Agreement”).

(c) During the Employment Period, Employee shall be eligible to be granted performance shares and additional options consistent with grants made to other executive officers, in all cases as determined by the Board (or a committee thereof) in its sole discretion.

2.4. Vacation Benefits.

Employee shall be entitled to three weeks of vacation annually to be used and accrued in accordance with the Company’s vacation policy as it shall be in effect from time to time. In addition, Employee shall receive other paid time-off in accordance with the Company’s policies for executive

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officers as they may exist from time to time.

2.5. Automobile Allowance.

Employee shall be entitled to reimbursement of $500 per month to defray the cost of maintaining an automobile. Employee shall also be entitled to reimbursement of reasonable and appropriate automobile insurance. Such amount shall be reported to the Internal Revenue Service as part of the Employee’s compensation.

2.6. Group Benefits.

Employee and his spouse and dependents shall be entitled to participate in all medical, dental, vision, life insurance, disability and any other benefit or insurance plans established by Company and made available to its other executive officers in accordance with the terms of such plans as they may be in effect from time to time.

2.7. Other Fringe Benefits.

Employee shall be entitled to participate in all fringe benefits as are generally made available by Company to its executive officers and may be in effect from time to time.

2.8. Business Expenses.

Company will reimburse Employee for reasonable business expenses incurred in performing his duties and promoting the business of Company in accordance with the Company’s business expense reimbursement policies. These expenses may include, but are not limited to, reasonable entertainment expenses, travel and lodging expenses, long distance and cellular telephone expenses, and approved professional memberships in accordance with Company’s business expense reimbursement policies.

2.9. Indemnification; Insurance.

Employee’s Position will be added as an additional named insured, in his capacity as an officer or director, under all liability insurance policies now in force or hereafter obtained covering any officer or director of Company. Company will indemnify Employee in his capacity as an officer and/or director and hold him harmless from any cost, expense or liability arising out of or relating to Company to the maximum extent provided by Company’s Certificate of Incorporation and Bylaws and by applicable law, and Company will execute and deliver such further instruments as reasonably requested by Employee to effect the foregoing.

3. Termination.

3.1. Due to Death or Disability.

If Employee dies during the Employment Period, Employee’s employment shall terminate as of the date of his death. The Company may terminate Employee if he becomes “disabled,”

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as defined below, upon written notice to Employee. Such termination shall not be a breach of this Agreement. For purposes of this Agreement, the term “Disability” shall mean a physical or mental incapacity as a result of which Employee becomes unable to continue the regular performance of Employee’s duties hereunder for ninety (90) consecutive days or for one hundred twenty (120) non-consecutive days in any three hundred sixty-five (365) day period, or, if this provision is inconsistent with any applicable law, for such longer period or periods as permitted by law.

3.2. By the Company Without “Cause”.

The Company may terminate this Agreement without Cause (as hereinafter defined) at any time following the Effective Date upon 30 days prior written notice to Executive. Such termination shall not be a breach of this Agreement.

3.3. By the Company For Cause.

The Company may terminate Employee’s employment for Cause at any time by providing Employee written notice of its intent to terminate him for Cause which sets forth in reasonable detail the Company’s basis for such termination. Such termination shall not be a breach of this Agreement. For purposes of this Agreement, Cause shall mean:

(a) Employee’s continued failure to perform the specific, lawful directives of the current CEO (i.e., as of the Effective Date) or Board concerning Employee’s duties with Company (other than any such failure resulting from Employee’s incapacity due to physical or mental illness) after (i) a good-faith written demand of the current CEO (i.e., as of the Effective Date) or Board for substantial performance is delivered to Employee which identifies the specific manner in which the Board believes that Employee has not performed his duties and (ii) a reasonable opportunity (of not less than 30 days) is provided to Employee to substantially cure such failure, provided it is a curable event;

(b) Employee’s conviction of, or plea of guilty or nolo contendere to, a felony or any other comparable crime under applicable law;

(c) Employee’s commission of any act of theft, embezzlement or misappropriation against the Company;

(d) Employee’s willful breach of the known (by Employee) and written standards set by the Company’s Business Ethics Policy and Code of Conduct;

(e) Employee’s material breach of a material term of this Agreement or material breach of any written or otherwise known material Company policy or standard of conduct known by Employee; provided that a reasonable opportunity (of not less than 30 days) is provided to Employee to substantially cure such failure, and provided it is a curable event; and

(f) Employee’s use of illegal drugs or abuse of alcohol or legally prescribed drugs; and/or

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(g) Breach of a material representation made by Employee hereunder, provided that a reasonable opportunity (of not less than 30 days) is provided to Employee to substantially cure such failure, and provided it is a curable event.

3.4. By Employee for Good Reason.

Employee may terminate this Agreement for Good Reason (as defined below) within 90 days after the occurrence of an event giving rise to such Good Reason by providing written notice to the Company describing the claimed event or circumstance and setting forth Employee’s intention to terminate Employee’s employment with Company; provided Company is first provided a reasonable opportunity of 30 days to substantially cure such event, provided it is a curable event. For purposes of this Agreement, “Good Reason” shall mean that any of the following have occurred: (i) the Company has materially breached a material term of this Agreement, (ii) Employee is directed to perform an act that Employee reasonably believes to be in contravention of law, or which Employee reasonably believes would subject himself to material liability or would constitute an act of perjury by Employee (including but not limited to any requirement to execute any instrument in support of any certificate required by Company in any public filing or periodic or current report of Company) despite his express written objection addressed to the Chief Executive Officer or to the Board with respect to such action, (iii) there is a material reduction in the nature or scope of Employee’s responsibilities, (iv) there is any change in Employee’s title, (v) there is any reduction in Employee’s Base Salary or any reduction in Employee’s benefits (other than any reduction in benefits generally applicable to similarly situated officers of Company) or (vi) Employee is required to relocate his principal place of business outside a radius of 35 miles from the current principal place of business of Company. Such termination shall not be a breach of this Agreement.

3.5. By Employee without Good Reason.

Employee may terminate this Agreement without Good Reason by providing at least one hundred twenty (120) days written notice to the Company. Such termination shall not be a breach of this Agreement.

3.6. Expiration of the Employment Period.

Employee’s employment shall automatically terminate upon expiration of the Employment Period unless the parties agree to extend the Employment Period or continue the employment relationship “at will.”

3.7. Termination Payment.

For purposes of this Section 3.7, the “Severance Period” will mean the period beginning on the Termination Date as defined herein and ending on the later of (i) August 25, 2006 or (ii) the 12-month anniversary of the Termination Date; provided that if such period is longer than 24 months, the Severance Period will instead mean the period beginning on the Termination Date and ending on the 24-month anniversary of the Termination Date.

(a) Amount. In the event that Employee’s employment is terminated pursuant to Sections 3.1 through 3.6, Employee shall continue to render services to the

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Company pursuant to this Agreement until his date of death or the date of termination (“Termination Date”) and shall continue to receive compensation and payment for any unreimbursed expenses incurred and other accrued employee benefits as provided in this Agreement, through the Termination Date. If requested by the Board, effective on the Termination Date, Employee shall resign all directorships and officerships Employee then holds with the Company and its affiliates. Subject to Section 3.7(c) below, in the event Employee’s employment is terminated pursuant to Section 3.2 or 3.4, Employee shall be entitled to receive, as severance for such termination, (i) throughout the Severance Period continued payment of the Base Salary at the rate in effect immediately prior to the Termination Date in accordance with the Company’s normal payroll cycle and (ii) at the time the Company pays annual bonuses, a prorated portion of Employee’s Annual Bonus for the fiscal year of termination; provided that, at the time such bonuses are determined with respect to such fiscal year, the Board (or Committee thereof) concludes that Employee would have been entitled to an Annual Bonus pursuant to Section 2.2 hereof had he remained employed by the Company until the date that such fiscal year’s bonus, if any, would be payable. Except as provided in this Section 3.7, from and after the Termination Date, Employee shall not be entitled to any other payments in connection with his employment and/or the termination thereof, and shall have no further right to receive compensation or other consideration from the Company or have any other remedy whatsoever against the Company as a result of the termination of this Agreement, the Employment Period or the termination of Employee’s employment. Employee shall have a duty of mitigation and shall be subject to right of offset with respect to any compensation received by Employee on or after the termination of employment, unless Company determines otherwise in its sole discretion.

(b) Benefits. Subject to Section 3.7(c) below, in the event that Employee’s employment is terminated pursuant to Section 3.2 or 3.4 and Employee (or his qualified dependents as applicable) timely elects to continue healthcare coverage through COBRA for himself and/or his spouse and qualified dependents, the Company shall throughout the Severance Period continue to timely pay, directly to the COBRA provider, that portion of the COBRA premium equal to the difference between the COBRA premium and Employee’s monthly contribution (if any) towards healthcare benefits that was in effect as of the Termination Date (the “Monthly Contribution”) (or, if such COBRA provider does not permit continuation of such benefits throughout such period, Company will reimburse Employee or his qualified dependents throughout the Severance Period the amount equal to the monthly premium paid by Employee or his qualified dependents to obtain substantially similar benefits coverage, less the Monthly Contribution, and up to a maximum amount of the equivalent cost of COBRA continuation coverage). The Company shall make such payments during the Severance Period so long as Employee or his qualified dependents continue to timely pay any Monthly Contribution to the provider of such benefits and are

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eligible to continue COBRA benefits (the “Severance Benefits”). For purposes hereof, “COBRA” means the 1986 Consolidated Omnibus Budget Reconciliation Act and any applicable state law.

(c) Release. To be eligible to receive severance and Severance Benefits under this Section 3.7, Employee must execute and deliver (and not revoke, if a revocation period is required by law) a release of all claims against the Company and any of its parent, subsidiaries, affiliates, shareholders, members, partners, investors, officers, directors, agents and employees in a form reasonably acceptable to the Company and Employee, so long as Company (on behalf of itself and its parent, subsidiaries and affiliates) concurrently executes and delivers to Employee a release of all claims against Employee and his affiliates, successors and beneficiaries on the same terms and conditions. Notwithstanding the foregoing or anything else herein to the contrary, the Company’s release of Employee herein does not extend to any claim, known or unknown, suspected or unsuspected, against Employee (i) which arises out of facts which are finally adjudged by a court of competent jurisdiction to be a willful breach of fiduciary duty or the violation of any federal, state or local statute, law, ordinance or regulation, or (ii) which are based upon facts which give rise to a recovery by the Company against Employee under any applicable policy of insurance solely as a result of actions or omissions by Employee and as to which the insurer has a right to subrogation against Employee.

4. Trade Secrets, Confidentiality and Non-Solicitation.

4.1. Employee specifically agrees that Employee will not at any time, whether during or subsequent to the Employment Period, in any fashion, form or manner, except in furtherance of Employee’s duties at Company or with the specific written consent of Company or as required by law or to enforce the terms of this Agreement, either directly or indirectly use or divulge, disclose or communicate to any Person in any manner whatsoever, any confidential information of any kind, nature or description concerning any matters affecting or relating to the business of Company (the “Proprietary Information”), including (i) all information, formulae, compilations, software programs (including object codes and source codes), devices, methods, techniques, drawings, plans, experimental and research work, inventions, patterns, processes and know-how, whether or not patentable, and whether or not at a commercial stage related to Company or any subsidiary thereof, (ii) the names, buying habits or practices of any of its customers, (iii) Company’s marketing methods and related data, (iv) the names of any of its vendors or suppliers, (v) Company’s costs of materials, (vi) the prices it obtains or has obtained or at which its sells or has sold its products or services, (vii) lists or other written records used in Company’s business, (viii) compensation paid to employees and other terms of employment or (ix) any other confidential information of, about or concerning the business of Company, its manner of operation, or other confidential data of any kind, nature, or description. The parties hereto stipulate that as between them, Proprietary Information constitutes trade secrets that derive independent economic value, actual or potential, from not being generally known to the public or to other Persons who can obtain economic value from its disclosure or use and that Proprietary Information is the subject of efforts which are reasonable under the circumstances to maintain its secrecy and of which this Section 4.1 is an example. All Proprietary Information shall be and remain Company’s sole property. The

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parties agree that Proprietary Information will not include any information (1) that has been published in a form generally available to the public through no fault of Employee or (2) which Employee obtains from a third party not required by Company to hold such information in confidence.

4.2. Employee agrees to keep confidential and not to use or divulge except in furtherance of Employee’s duties at Company any Proprietary Information of any customer of Company to which Employee may obtain access during the Employment Period.

4.3. Employee acknowledges that by virtue of Employee’s position and employment hereunder, Employee will have advantageous familiarity with, and knowledge about, the Company and will be instrumental in establishing and maintaining goodwill between the Company and its customers, which goodwill is the property of the Company. Therefore, Employee agrees that during Employee’s employment and for a twelve (12) month period commencing from the Termination Date, Employee will not on behalf of himself, or any other person or entity, directly or indirectly, solicit, take away, hire, employ or endeavor to employ any person who is employed by Company with the title of Vice President or above; provided that this restriction will not apply with respect to any individuals who solely respond to general advertisements or solicitations made through trade-related or other media in which Employee had no part.

5. Inventions.

5.1. Employee agrees to disclose promptly to Company any and all concepts, designs, inventions, discoveries and improvements (collectively, “Inventions”) that Employee may conceive, discover or make from the beginning of Employee’s employment with Company until the termination thereof, whether such is made solely or jointly with others, whether or not patentable, and whether or not such conception or making involves the use of Company’s time, facilities, equipment or personnel.

5.2. Employee agrees to assign, and does hereby assign, to Company (or its nominee) Employee’s right, title and interest in and to any and all Inventions that Employee may conceive, discover or make, either solely or jointly with others, patentable or unpatentable, from the beginning of Employee’s employment with Company until the termination thereof.

5.3. Employee agrees to sign at the reasonable request of Company any instrument necessary for the filing and prosecution of patent applications in the United States and elsewhere, including divisional, continuation, revival, renewal or reissue applications, covering any Inventions and all instruments necessary to vest title to such Inventions in Company (or its nominee). Employee further agrees to reasonably cooperate and reasonably assist Company in preparing, filing and prosecuting any and all such patent applications and in pursuing or defending any litigation upon Inventions covered hereby. Company shall bear all costs and expenses involved in the prosecution of such patent applications it desires to have filed. Employee agrees to sign at the reasonable request of Company any and all instruments necessary to vest title in Company (or its nominee) to any specific patent application prepared by Company and covering Inventions which Employee has agreed to assign to Company (or its nominee) pursuant to Section 5.2 above.

5.4. The provisions of Sections 5.2 and 5.3 do not apply to an invention which qualifies fully

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under the provisions of Section 2870 of the California Labor Code, which provides in substance that provisions in an employment agreement providing that an employee shall assign or offer to assign rights in an invention to his or her employer do not apply to an invention for which no equipment, supplies, facilities, or trade secret information of the employer was used and which was developed entirely on the employee’s own time, except for those inventions that either (a) relate, at the time of conception or reduction to practice of the invention, (1) to the business of the employer or (2) to the employer’s actual or demonstrably anticipated research or development, or (b) result from any work performed by the employee for the employer.

6. Shop Rights.

Company shall also have a perpetual, royalty-free, non-exclusive right to use in its business, and to make, use, license and sell products, processes and/or services derived from any inventions, discoveries, designs, improvements, concepts, ideas, works of authorship, whether patentable or not, including processes, methods, formulae, techniques or know-how related thereto, that are not within the scope of “Inventions” as defined above, but which are conceived or made by Employee during regular working hours or with the use of the facilities, materials or personnel of Company.

7. Injunctive Relief.

Employee acknowledges that any violation of any provision of Sections 4 through 6 and 10 herein by Employee will cause irreparable damage to the Company, that such damages will be incapable of precise measurement and that, as a result, the Company will not have an adequate remedy at law to redress the harm which such violations will cause. Therefore, in the event of any violation or threatened violation of any provision of Sections 4 through 6 and 10 by Employee, in addition to any other rights at law or in equity, Employee agrees that the Company will be entitled to injunctive relief including, but not limited to, temporary and/or permanent restraining orders to restrain any violation or threatened violation of such Sections by Employee.

8. Blue Pencil.

It is the desire and intent of the parties that the provisions of Sections 4 through 7 hereof shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any portion of Sections 4 through 7 shall be adjudicated to be invalid or unenforceable, such provision shall be deemed amended either to conform to such restrictions as the court or arbitrator may allow, or to delete therefrom or reform the portion thus adjudicated to be invalid and unenforceable, such deletion or reformation to apply only with respect to the operation of such Section in the particular justification in which such adjudication is made. It is expressly agreed that any court or arbitrator shall have the authority to modify any provision of Sections 4 through 7 if necessary to render it enforceable, in such manner as to preserve as much as possible the parties’ original intentions, as expressed therein, with respect to the scope thereof.

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9. Copyright.

Employee agrees that any work prepared for Company that is eligible for copyright protection under any U.S. or foreign law shall be a work made for hire and ownership of all copyrights (including all renewals and extensions therein) shall vest in Company. In the event any such work is deemed not be a work made for hire for any reason, Employee hereby irrevocably grants, transfers and assigns all right, title and interest in such work and all copyrights in such work and all renewals and extensions thereof to Company, and agrees to provide all assistance reasonably requested by Company in the establishment, preservation and enforcement of its copyright in such work, such assistance to be provided at Company’s expense but without any additional compensation to Employee. Employee agrees to and does hereby irrevocably waive all moral rights with respect to the work developed or produced hereunder, including any and all rights of identification of authorship and any and all rights of approval, restriction or limitation on use or subsequent modifications.

10. Employee’s Duties on Termination.

In the event of termination of Employee’s employment, Employee agrees to deliver promptly to Company all tangible Proprietary Information which is or has been in Employee’s possession or under Employee’s control (or to certify as to the items no longer in Employee’s possession or control). Upon termination or for any reason whatsoever and at any earlier time the Company so requests, Employee will deliver to the custody of the person designated by the Company all originals and copies of such documents and other property of the Company in Employee’s possession, under Employee’s control or to which Employee may have access (or certify as to the items no longer in Employee’s possession or control). Until the end of the second anniversary of the Termination Date, Employee and Company (on behalf of itself and its affiliates) acknowledge and agree that they will not publicly criticize the services, business, integrity, veracity or personal or professional reputation of each other in either a professional or personal manner, unless otherwise required by law.

11. Additional Covenants.

11.1. During the Employment Period, Employee agrees that Employee will not directly or indirectly, own an interest in, operate, join, control, or participate in, or be connected as an officer, employee, agent, independent contractor, partner, shareholder, or principal of any Person producing designing, providing, soliciting orders for, selling, distributing, or marketing products, goods, equipment, and/or services which directly or indirectly compete with the products and/or services of Company’s business, except as otherwise permitted in this Agreement. Notwithstanding anything else in Sections 11.1, 11.2, 11.3 and 11.4, Employee may directly or indirectly own securities of any entity or Person so long as Employee does not own 5% or more of the outstanding securities of such entity or Person.

11.2. During the Employment Period, Employee agrees that Employee will not, directly or indirectly, either for himself or for any other Person, divert or take away or attempt to divert or take away any of Company’s customers, including those upon whom Employee called or whom Employee solicited while engaged as an employee of Company, except as otherwise permitted in this Agreement.

11.3. During the Employment Period, Employee agrees that Employee will not undertake planning for, or organization of any business activity competitive with, the Company’s business or

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combine or conspire with other employees or representatives of Company’s business for the purpose of organizing any such competitive business activity, except as otherwise permitted in this Agreement.

11.4. Nothing contained in this Section 11 shall be deemed a waiver of Employee’s obligations under Section 4, and in the event of any conflict or inconsistency between the provisions hereof and Section 4, the provisions of Section 4 shall control. The covenants of this Section 11 shall be construed as separate covenants covering their subject matter in each of the separate counties, states, provinces or other political subdivisions in which Company transacts its business. To the extent that any covenant shall be unenforceable in any of said counties, states, provinces or other political subdivisions, said covenant shall not be affected with respect to each other county, state, province or other political subdivision, each covenant with respect to each county, state, province or other political subdivision being construed as severable and independent. To the extent any of the covenants of Section 11 are unenforceable, a court of competent jurisdiction or duly appointed arbitrator shall have the authority to modify such provision in order for it to be enforceable, such modification to preserve as much as possible the parties’ original intentions with respect to such provision.

12. Arbitration.

12.1. In consideration of the Company employing Employee or continuing to employ Employee and the mutual promises set forth herein, Employee and the Company agree, on behalf of themselves as well as their representatives, successors, and assigns, that any controversy or claim arising out of or relating to this Agreement, its enforcement or interpretation, or because of an alleged breach, default, or misrepresentation in connection with any of its provisions, or arising out of or relating in any way to Employee’s employment with Company or termination thereof, shall first be attempted to be settled through good faith negotiation for a period of 7 days or longer as determined by Company and Employee in writing. If the dispute cannot be settled through negotiation, the parties agree to attempt in good faith to settle the dispute by mediation administered by JAMS for resolution in Orange County, California for a period of 10 days or longer as determined by Company and Employee in writing. If the parties are unsuccessful at resolving the dispute through mediation, the parties agree to final and binding arbitration in Orange County, California, before a single arbitrator, in accordance with the procedures required under California law.

12.2. To the extent not inconsistent with California law, the following will govern any arbitration hereunder:

(a) The JAMS Employment Arbitration Rules & Procedure subject to JAMS Policy on Employment Arbitration Minimum Standards of Procedural Fairness shall apply. The arbitrator may award any form of remedy or relief (including injunctive relief) that would otherwise be available in court, consistent with applicable laws. Any award pursuant to said arbitration shall be accompanied by a written opinion of the arbitrator setting forth the reason for the award. The award rendered by the arbitrator shall be conclusive and binding upon the parties hereto, and judgment upon the award may be entered, and enforcement may be sought in, any court of competent jurisdiction.

(b) Except as provided in this Agreement or as required by law, each party shall pay

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its own expenses of arbitration and the expenses of the arbitrator (including compensation) shall be borne equally by the parties. However, the arbitrator will assess to the maximum extent as provided by law, as part of the arbitration award to the prevailing party, all or any part of the arbitration expenses (including reasonable attorney’s fees and expenses) of the other party and the arbitration fees against the non-prevailing party.

(c) This predispute resolution agreement covers all matters directly or indirectly related to Employee’s recruitment, employment, or termination of employment by the Company, including, but not limited to, alleged violations of Title VII of the Civil Rights Act of 1964, sections 1981 through 1988 of Title 42 of the United States Code and all amendments thereto, Employee Retirement Income Security Act of 1974 (“ERISA”), the Americans with Disabilities Act of 1990 (“ADA”), the Age Discrimination in Employment Act of 1967 (“ADEA”), the Older Workers Benefits Protection Act of 1990 (“OWBPA”), the Fair Labor Standards Act (“FLSA”), the Occupational Safety and Health Act (“OSHA”), the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), and any and all claims under federal, state, and local laws against discrimination, but excluding Worker’s Compensation Claims.

12.3. In the event that either party files, and is allowed by the courts to prosecute, a court action against the other, the plaintiff in such action agrees not to request, and hereby waives such party’s right to a trial by jury.

12.4. EMPLOYEE AND THE COMPANY UNDERSTAND THAT, ABSENT THIS AGREEMENT, THEY WOULD HAVE THE RIGHT TO SUE EACH OTHER IN COURT, AND THE RIGHT TO A JURY TRIAL, BUT, BY THIS AGREEMENT, GIVE UP THAT RIGHT AND AGREE TO RESOLVE ANY AND ALL GRIEVANCES BY ARBITRATION.

13. Additional Terms.

13.1. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given when received if personally delivered, when transmitted if transmitted by telecopy, electronic or digital transmission method with electronic confirmation of receipt, the day after it is sent, if sent for next-day delivery to a domestic address by recognized overnight delivery service with a confirmation of delivery; and upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent to: (a) If to the Company: Vice President, Human Resources, The Wet Seal, Inc., 26972 Burbank, Foothill Ranch, California 92610, facsimile number (949) 699-4722; or (b) If to Employee: Allan D. Haims, to Employee’s address as recorded in Company’s personnel records or such other address as Employee may provide to Company in writing, with a copy (not constituting notice) to O’Melveny & Myers LLP, 1999 Avenue of the Stars, Suite 700, Los Angeles, CA 90067, Attention: Steven L. Grossman, Esq.

13.2. All compensation payable to Employee hereunder shall be subject to such withholdings and taxation as may be required by applicable law.

13.3. The failure of either party at any time to require the other’s performance of any provision hereof shall not affect its rights thereafter to enforce the same; nor shall the waiver of any breach of any

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provision hereof be construed to be a waiver of any succeeding breach of any such provision, or to be a waiver of the provision itself.

13.4. This Agreement (together with the other documents referenced herein) constitutes the entire agreement between the parties hereto and supersedes all prior agreements and undertakings, both written and oral, with respect to the subject matter hereof and, except as otherwise expressly provided herein, is not intended to confer upon any other person any rights or remedies hereunder. Any prior agreements of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled as of the date hereof. This Agreement may not be amended or modified except by an instrument in writing signed by Employee and by a duly authorized officer selected at such time by the Board.

13.5. This Agreement may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but both of which taken together shall constitute one and the same agreement.

13.6. This Agreement shall be governed by and construed in accordance with the laws of the State of California without giving effect to that State’s choice of law rules.

13.7. This Agreement may not be assigned or transferred by either party hereto without the prior written consent of the other party, except Company may assign or transfer this Agreement to any assignee of all or substantially all of its assets or to the surviving entity in any merger or other reorganization of Company. Except as otherwise provided herein, all provisions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the respective heirs, executors, administrators, personal representatives, and permitted successors and assigns of either party hereto.

13.8. The Section headings are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of any of the provisions of this Agreement. All references to Sections contained in this Agreement refer to the Sections of this Agreement. All references to the words “include” or “including” mean “including without limitation.” There will be no presumption against any party (or its counsel) on the ground that such party (or its counsel) was responsible for preparing this Agreement or any part of it.

13.9. The paragraphs and provisions of this Agreement are severable. If any paragraph or provision is found to be unenforceable, the remaining paragraphs and provisions will remain in full force and effect.

13.10. The parties hereto acknowledge that they have read and understood each and every provision of this Agreement and consent to all of its terms and provisions contained herein, voluntarily and without any reservation whatsoever, and that the parties have had the opportunity to have the same explained to them by independent legal counsel.

13.11. Company will reimburse Employee for his reasonable legal fees and expenses in connection with the negotiation, preparation and execution of this Agreement in an amount not to

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exceed Five Thousand Dollars ($5,000) upon the Company’s receipt of adequate documentation supporting the amount of the fees.

IN WITNESS WHEREOF, this Agreement has been executed as of the date first set forth in this Agreement.

THE WET SEAL, INC.
By:	/s/    PETER D. WHITFORD
Its:	CHIEF EXECUTIVE OFFICER

/s/    ALLAN D. HAIMS        

ALLAN D. HAIMS

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EX-31.1

EXHIBIT 31.1

Certification of the Chief Executive Officer Pursuant

to Section 302 of the Sarbanes-Oxley Act of 2002

I, Peter D. Whitford, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Wet Seal, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quitter that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

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a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control.

Date: September 12, 2003	/s/    PETER D. WHITFORD
	Peter D. Whitford
	Chief Executive Officer (Principal Executive Officer)

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EX-31.2

EXHIBIT 31.2

Certification of the Chief Financial Officer Pursuant

to Section 302 of the Sarbanes-Oxley Act of 2002

I, William B. Langsdorf, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Wet Seal, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quitter that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s)and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing

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the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control.

Date: September 12, 2003	By:	/s/    WILLIAM B. LANGSDORF
		William B. Langsdorf
		Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-32.1

EXHIBIT 32.1

Certification of the Chief Executive Officer Pursuant

to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with this report on Form 10-Q of The Wet Seal, Inc. for the period ended August 2, 2003, I, Peter D. Whitford, Chief Executive Officer of The Wet Seal, Inc., hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. This Form 10-Q for the period ended August 2, 2003 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in this Form 10-Q for the period ended August 2, 2003 fairly presents, in all material respects, the financial condition and results of operations of The Wet Seal, Inc.

Date: September 12, 2003	/s/    PETER D. WHITFORD
	Peter D. Whitford Chief Executive Officer (Principal Executive Officer)

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EX-32.2

EXHIBIT 32.2

Certification of the Chief Financial Officer Pursuant

to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with this report on Form 10-Q of The Wet Seal, Inc. for the period ended August 2, 2003, I, William B. Langsdorf, Chief Financial Officer of The Wet Seal, Inc., hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. This Form 10-Q for the period ended August 2, 2003 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in this Form 10-Q for the period ended August 2, 2003 fairly presents, in all material respects, the financial condition and results of operations of The Wet Seal, Inc.

Date: September 12, 2003	/s/    WILLIAM B. LANGSDORF
	William B. Langsdorf
	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-99.1

EXHIBIT 99.1

Factors Affecting Future Financial Results

Statement Regarding Forward-Looking Disclosure and Risk Factors

Certain sections of this Quarterly Report on Form 10-Q may contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent our expectations or beliefs concerning future events.

Forward-looking statements include statements that are predictive in nature, which depend upon or refer to future events or conditions, which include words such as “believes,” “plans,” “anticipates,” “estimates,” “expects” or similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects, and possible future actions, which may be provided by our management, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our company, economic and market factors and the industry in which we do business, among other things. These statements are not guaranties of future performance and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. Factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements, include, but are not limited to those discussed below and elsewhere in this Form 10-Q.

We may be unable to sustain comparable store sales growth.

Growth in our business depends, in part, on our ability to sustain comparable store sales growth. We use the term “comparable store sales” to refer to sales in stores that were open for at least 14 full fiscal months. A variety of factors affect comparable store sales results, including changes in fashion trends, changes in our merchandise mix, calendar shifts of holiday periods, actions of competitors, weather conditions and general economic conditions. Our comparable store sales results have declined significantly in the past year, and we cannot assure you that comparable store sales will not continue to decline in the future.

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Our profitability depends on our ability to anticipate and react to new trends.

Our ability to return to profitability depends largely on our ability to anticipate the changing fashion tastes of our customers and to respond to those changing tastes in a timely manner. The fashion tastes of our customers change frequently, and if we fail to anticipate, identify or react appropriately to changing styles, trends or brand preferences of our customers, we may experience lower sales, excess inventories and more frequent markdowns, which could have a material adverse effect on our business. In addition, if we misjudge fashion trends, our image with our customers may be significantly impaired, and our customers might cease to purchase additional merchandise from us in the future. This is particularly acute because we rely on a limited demographic for a large percentage of our sales.

Our sales and ability to return to profitability also depend upon the continued demand by our customers for fashionable, casual apparel. Demand for our merchandise could be negatively affected by shifts in consumer discretionary spending to other goods such as electronic equipment, computers and music, for example. If the demand for apparel and related merchandise were to decline, our financial results would be adversely affected by any resulting decline in sales.

We compete with other retailers for sales and locations.

The women’s retail apparel industry is highly competitive, with fashion, quality, price, location, in-store environment and service being the principal competitive factors. We compete for sales with specialty apparel retailers, department stores and certain other apparel retailers, including Charlotte Russe, Gadzooks, Pacific Sunwear, Forever 21, Express, bebe, Rampage and Limited Too. We also compete for favorable site locations and lease terms in shopping malls. Many of our competitors are large national chains, which have substantially greater financial, marketing and other resources than we do. While we believe we compete effectively for sales and for favorable site locations and lease terms, competition for prime locations within malls, in particular, and within other locations is intense and we cannot assure you that we will be able to obtain new locations or maintain our existing locations on terms favorable to us, if at all.

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Because of the importance of our brand names, we may lose market share to our competitors if we fail to adequately protect our intellectual property rights.

We believe that our trademarks and other proprietary rights are important to our success. We have registered trademarks for Wet Seal, Contempo Casuals and Zutopia, and have applied for a registration for Arden B. Even though we take actions to establish and protect our trademarks and other proprietary rights, we cannot assure you that others will imitate our products or infringe on our intellectual property rights. In addition, we cannot assure you that others will not resist or seek to block the sale of our products as a violation of their trademarks and proprietary rights. If we are required to stop using any of our registered or non-registered marks, our sales could decline and our business and results of operations could be adversely affected.

Our business is affected by local, regional and national economic conditions.

Our business is sensitive to consumer spending patterns and preferences. Various economic conditions affect the level of spending on the merchandise we offer, including general business conditions, interest rates, taxation, and the availability of consumer credit and consumer confidence in future economic conditions. Our growth, sales and profitability may be adversely affected by unfavorable occurrences in these economic conditions on a local, regional or national level. We are especially affected by economic conditions in California, where approximately 14% of our stores are located.

Most of our stores are located in regional shopping malls. We derive sales, in part, from the high volume of traffic in these malls. The inability of mall “anchor” tenants and other area attractions to generate consumer traffic around our stores, or the decline in popularity of malls as shopping destinations would reduce our sales volume.

Our success depends upon the performance of our senior management and our ability to attract and retain key management personnel.

Our company’s success depends to a significant extent upon the performance of our senior management, particularly personnel engaged in merchandising and store operations. Our success also depends, in part, on our ability to identify, hire and retain additional key management personnel. Competition for qualified personnel in the retail apparel industry can be intense, and we cannot assure you that we will be able to identify, hire or retain the key personnel necessary to grow and operate our business as currently contemplated.

In addition, we recently hired several key management personnel, including our Chief Executive Officer, the President of our Wet Seal

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division and our Senior Vice President-Creative Director. These individuals are highly qualified for the positions for which they were hired, but have only worked together for a short time and have not yet demonstrated their ability to work together effectively.

Increases in Federal and state minimum wage laws could increase our expenses.

Statutory increases in Federal and state minimum wages could adversely effect our profitability by increasing our expenses. Alaska, Connecticut, Hawaii, Maine, Oregon, and Washington each increased their state minimum wages above the Federal minimum as of the end of the fiscal year ended February 1, 2003. We operated a total of 31 stores in those states as of August 2, 2003. The recent state increases and any other future Federal or state increases could raise minimum wages above the current wages of some of our employees, and competitive factors could require us to make corresponding increases in employee wage rates. Increases in our wage rates increases our expenses, which could adversely affect our results of operations.

We must increase our regional and demographic scope to continue the growth of our business.

We rely on a relatively narrow demographic customer base and a concentration of stores in particular geographic regions for a significant percentage of our sales. We believe we need to increase our demographic and geographic scope to continue our growth. As our operations grow, there will be increasing strains on our resources, and we could experience difficulties enhancing our distribution, financial and operating systems. There can be no assurance that we will be able to expand, that any expansion will be profitable or that we will be able to manage our expansion effectively.

Our company has historically expanded by opening new stores, remodeling existing stores and acquiring other store locations or businesses that complement and enhance our operations. From time to time we have created new retail concepts such as Arden B. There can be no assurance that these new fashion businesses will gain consumer acceptance or ultimately be successful. Our ability to open stores and the performance of newly opened stores depends upon several factors, including among others, our ability to:

• locate and obtain favorable store sites;

• negotiate acceptable lease terms;

• obtain adequate supplies of merchandise; and

• hire and train qualified management personnel and other employees.

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Our ability to complement and enhance our operations through acquisitions depends on our ability to integrate the new business, its management, systems and relationships into our company. This type of integration is often very difficult and may not be successful. Our inability to integrate any future acquisitions into our corporate structure could adversely effect our results of operations.

Our business is seasonal in nature.

The retail apparel industry is highly seasonal. We generate our highest levels of sales during the Christmas season, which begins the week of Thanksgiving and ends the first Saturday after Christmas, and the “back to school” season, which begins the last week of July and ends the first week of September. Our 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 economic conditions, poor weather or other factors beyond our control, could have a material adverse effect on our company.

We depend upon key vendors to supply us with merchandise for our stores.

Our business depends on our ability to purchase current season apparel in sufficient quantities at competitive prices. The inability or failure of our key vendors to supply us with adequate quantities of desired merchandise, the loss of one or more key vendors or a material change in our current purchase terms could adversely affect our business. We have no long-term purchase contracts or other contractual assurances of continued supply, pricing or access to new products. We cannot assure you that we will be able to acquire desired merchandise in sufficient quantities or on terms acceptable to us in the future.

We depend upon a single distribution facility.

The distribution functions for all of our stores are handled from a single, leased facility in Foothill Ranch, California. Any significant interruption in the operation of the distribution facility due to natural disasters, accidents, system failures or other unforeseen causes could delay or impair our ability to distribute merchandise to our stores, which could cause our sales to decline.

We do not authenticate the license rights of our suppliers.

We purchase merchandise from a number of vendors who hold manufacturing and distribution rights under the terms of license

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agreements. We generally rely upon each vendor’s representation concerning those manufacturing and distribution rights and do not independently verify whether each vendor legally holds adequate rights to the licensed properties they are manufacturing or distributing. If we acquire unlicensed merchandise, we could be obligated to remove it from our stores, incur costs associated with destruction of the merchandise if the vendor is unwilling or unable to reimburse us, and be subject to liability under various civil and criminal causes of action. The occurrence of any of these events could adversely effect our financial condition and results of operations.

We experience business risks as a result of the catalog and internet business.

We compete with catalog and internet businesses that handle similar lines of merchandise. These competitors have certain advantages, including the inapplicability of sales tax and the absence of retail real estate and related costs. As a result, increased catalog and internet sales by our competitors could result in increased price competition and decreased margins.

We operate internet sites where customers can purchase our merchandise on-line at www.wetseal.com and www.ardenb.com. These internet addresses are provided for informational purposes only and are not intended to be usable as hyperlinks. The information at these internet addresses are not a part of this filing. Our internet operations are subject to numerous risks, including:

• reliance on third party computer and hardware providers;

• diversion of sales from our retail stores; and

• online security breaches and/or credit card fraud.

Our inability to effectively address these factors could affect the profitability of our internet business, and we cannot assure you that we will be able to compete successfully through our internet business.

We are subject to risks associated with our international operations.

A significant portion of our products are manufactured outside the United States. As a result, we are subject to additional risks. For example, we cannot predict whether any of the foreign countries in which our products are currently manufactured or any of the countries in which our products may be manufactured in the future will be subject to future or increased import restrictions by the U.S. government, or the likelihood, type or effect of any trade restrictions. Trade restrictions, including increased tariffs or quotas, against apparel, footwear or other items sold by us could

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affect the importation of such merchandise generally and could increase the cost or reduce the supply of merchandise available to us and adversely affect our business, financial condition, results of operations and liquidity. Furthermore, our merchandise flow may be adversely affected by the financial or political instability in any of the countries in which our goods are manufactured or by significant fluctuations in the value of the U.S. dollar against foreign currencies or restrictions on the transfer of funds. If our merchandise flow is negatively impacted as a result of any of the risks associated with our international operations, our sales could decline.

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