UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

Filed by the Registrant    x

Filed by a Party other than the Registrant    ¨

Check the appropriate box:

THE WET SEAL, INC.

(Name of Registrant as Specified inIn Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

x    No fee required.Fee Required

¨    Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

¨    Fee paid previously with written preliminary materials.

THE WET SEAL, INC.

26972 Burbank

Foothill Ranch, California 92610

AprilDecember 14, 2004

Dear Stockholder:

You are cordially invitedI am pleased to invite you to attend the Annual Meetinga special meeting (the “Special Meeting”) of Stockholders of The Wet Seal, Inc.stockholders to be held at the Westin South Coast Plaza, 686 Anton Blvd., Costa Mesa, California 92626,on Monday, January 10, 2005, at 10:00 a.m., local time, on Thursday, May 27, 2004.at our principal executive offices located at 26972 Burbank, Foothill Ranch, California 92610, to vote upon the stockholder proposals contained in the accompanying proxy statement.

DuringOn November 9, 2004, we announced that we had entered into a series of financing transactions with S.A.C. Capital Associates, LLC, an entity managed by S.A.C. Capital Advisors, LLC, and other participating investors (collectively, the Annual“Original Investors”). On December 13, 2004, we modified the investment structure of our transaction with the Original Investors. Pursuant to the new structure, we have agreed, among other things, to issue to the Original Investors and certain additional investors (together with the Original Investors, the “Investors”):

The securities issued and issuable in this financing transaction are subject to specified ownership restrictions which prohibit the conversion or exercise of such securities if the holder (together with its affiliates) would beneficially own in excess of 9.99% of our outstanding common stock following exercise or conversion (or a lower percentage pursuant to notice from the applicable Investor).

As we also announced on November 9, 2004, we received a $10,000,000 secured bridge loan from the Original Investors to be used for working capital purposes through closing. Upon execution of the amended financing agreements, $2,500,000 of the aggregate principal amount of the bridge loan was assigned by certain of the Original Investors to the new participants in the financing. At closing, the outstanding principal amount of the bridge loan (together with accrued and unpaid interest) will be applied as a partial payment to the aggregate purchase price for the securities.

We entered into the agreements with the Original Investors to address our need to significantly improve our liquidity position and return our company to profitability. Under these original agreements, we agreed to issue $40,000,000 in aggregate principal amount of our new secured convertible notes at closing and the total number of warrant shares initially issuable to the Original Investors was 13,600,000. In addition to these securities, we agreed to issue two tranches of Additional Investment Right Warrants, which were exercisable into $15,850,000 in aggregate principal amount of additional Convertible Notes. Our company and the Original Investors agreed to modify the original agreements to increase the aggregate principal amount of new secured convertible notes issuable at closing by $16,000,000 because we believe it to be in our company’s best interests to have access to

additional liquidity at closing in order to implement our turn-around strategy for the Wet Seal division at an earlier stage. As partial consideration for providing the additional funds at closing, the Investors will receive warrants to acquire up to an additional 1,300,000 shares of our Class A Common Stock exercisable for four (4) years, with an initial exercise price of $2.75 per share.

We believe the financing arrangements provided by the Investors offer us a comprehensive solution to our financial condition which has been deteriorating for several quarters. In particular, without the interim bridge loan provided by the Investors, we would have faced significant liquidity problems in the near term which most likely would have required us to file for bankruptcy protection.

However, prior to consummating the transactions with the Investors, we need to obtain the approval of our stockholders with regard to the following proposals described in more detail in the accompanying proxy statement:

In addition to these proposals, we seek your approval of The Wet Seal, Inc. 2005 Stock Incentive Plan which will allow us to offer new incentive arrangements to management who will assist us in the turn-around of our Wet Seal operations.

After careful review, our Board of Directors unanimously determined that each of the proposals is advisable and in the best interest of our company. Therefore, our Board of Directors recommends that you vote to approve each of the proposals to be considered at the Special Meeting.

We encourage you to read the accompanying proxy statement which explains each proposal in greater detail. We hope you attend the Special Meeting in person, and we encourage you to vote your shares by marking, signing and dating the mattersenclosed proxy card if you are not able to attend. You may revoke your proxy at any time before it is exercised at the Special Meeting, or vote your shares personally if you attend the Special Meeting. If you sign, date and mail your proxy without indicating how you want to vote, your proxy will be counted as a voteFOR the ratification and approval of the issuance of the new securities described in the accompanying Proxy Statement will be considered. In addition, there will be a report regardingproxy statement,FOR the progressapproval of an amendment to our Certificate of Incorporation, relating to an increase in the Companynumber of authorized shares of our Class A Common Stock and there will be an opportunity to ask questionsFOR the approval of general interest to you as a stockholder.The Wet Seal, Inc. 2005 Stock Incentive Plan.

I hopeThank you will be able to join us at the Annual Meeting. Whether or not you expect to attend, you are urged to signin advance for your participation and return the enclosed proxy card in the envelope provided in order to make certain that your shares will be represented at the Annual Meeting.

prompt attention.

Sincerely,

IHRVINGENRY TWEITELBAUMINTERSTERN

Chairman of the Board

THE WET SEAL, INC.

26972 Burbank

Foothill Ranch, California 92610

NOTICE OF ANNUALSPECIAL MEETING OF STOCKHOLDERS

MAY 27, 2004JANUARY 10, 2005

10:00 a.m.

Notice is hereby given thatThe accompanying proxy statement relates to the Annual Meetingspecial meeting (the “Special Meeting”) of Stockholders (the “Annual Meeting”)stockholders of The Wet Seal, Inc. (the “Company”) willto be held at the Westin South Coast Plaza, 686 Anton Blvd., Costa Mesa, California 92626, on Thursday, May 27, 2004Monday, January 10, 2005, at 10:00 a.m., local time, at our principal executive offices located at 26972 Burbank, Foothill Ranch, California, or at such other time and place to considerwhich the Special Meeting may be adjourned or postponed. This notice, the accompanying proxy statement and vote upon:form of proxy card are being first mailed to our stockholders on or about December 14, 2004.THE ENCLOSED PROXY IS SOLICITED BY OUR BOARD OF DIRECTORS.

Each of the matters submitted to our stockholders at the Special Meeting is described in more detail in the accompanying proxy statement which we encourage you to read in its entirety, together with the related exhibits.

At the Special Meeting, you and our other stockholders will be asked to:

The BoardWe will not be able to complete our financing transactions with S.A.C. Capital Associates, LLC and the other participating investors described in the accompanying proxy statement unless you approve Proposals 1 and 2.

You may vote at the Special Meeting if you were a stockholder of Directors has fixedrecord at the close of business on April 9, 2004 as the record date for the determination of the stockholders entitled to notice of, and to vote at, the Annual Meeting. A list of such stockholders will be available for examination by any stockholder for any purpose germane to the Annual Meeting, during normal business hours, at the office of the Company for a period of ten days prior to the Annual Meeting.December 3, 2004.

To assureYour vote is important. You may vote on these matters in person or by proxy. We ask that you complete and return the enclosed proxy card promptly—whether or not you plan to attend the Special Meeting—in the enclosed addressed, postage-paid envelope, so that your shares will be represented and voted at the Annual Meeting, please sign and promptly return the accompanying proxy cardspecial meeting in the enclosed envelope.accordance with your wishes. You maycan revoke your proxy at any time before it is voted.prior to its exercise by written notice received by us, by delivering to us a duly executed proxy bearing a later date, or by attending the Special Meeting and voting your shares in person. If you sign, date and mail your proxy without indicating how you want to vote, your proxy will be counted as a voteFOR the approval of the issuance of the new securities described in the accompanying proxy statement,FOR the approval of an amendment to our Restated Certificate of Incorporation, as amended, relating to an increase in the number of authorized shares of our Class A Common Stock andFOR the approval of The Wet Seal, Inc. 2005 Stock Incentive Plan.

BY ORDER OF THE BOARD OF DIRECTORS,

SDTEPHENOUGLAS GC. FROSSELDERMAN

SecretaryChief Financial Officer

Dated: AprilFoothill Ranch, California

December 14, 2004

If you have any questions about the proposals, including the procedures for voting your shares, please contact Douglas C. Felderman at (949) 699-3919.

THE WET SEAL, INC.

26972 Burbank

Foothill Ranch, California 92610

PROXY STATEMENT

FOR

SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON JANUARY 10, 2005

Table of Contents

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This Proxy Statementproxy statement contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements that relate to our company’s opening and closing of stores, profitability and growth, demand for our products or any other statements that relate to the intent, belief, plans or expectations of our company or our management. All forward-looking statements made by our company involve material risks and uncertainties and are subject to change based on factors beyond our company’s control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in our filings with the Securities and Exchange Commission (the “SEC”). We will not undertake to publicly update or revise these forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION

Within this proxy statement, we make reference to our amended agreements with the investors in our financing transaction which have been attached as exhibits to our Current Report on Form 8-K filed with the SEC on December 14, 2004 (our “Transaction 8-K Report”). Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports and the proxy statement for our annual meeting of stockholders are made available, free of charge, on our website, http://www.wetsealinc.com, as soon as reasonably practicable after such reports have been filed with or furnished to the SEC. The content of our website is not intended to be incorporated by reference to this proxy statement.

You may read and copy any document we file, including a copy of the BoardTransaction 8-K Report, without charge at the SEC’s Public Reference Room, 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549. You can also obtain these documents from the SEC website, http://www.sec.gov. We will also provide without charge to each person to whom this proxy statement has been delivered, upon written or oral request, copies of Directors ofthe documents attached as exhibits to the Transaction 8-K Report. Written or telephone requests for such copies should be directed to Douglas C. Felderman, Chief Financial Officer, The Wet Seal, Inc., a Delaware corporation (the “Company”), in connection 26972 Burbank, Foothill Ranch California 92610, (949) 699-3919.

(i)

PROXY STATEMENT SUMMARY

We have included the following summary of our financing agreements with the solicitation of proxies for useInvestors (as defined below) to provide background information about the proposals to be presented at the Annualspecial meeting of our stockholders. You are encouraged to read this proxy statement in its entirety, together with the related exhibits.

Special Meeting

Time and Place of StockholdersSpecial Meeting

We have sent you this proxy statement and the enclosed proxy card because our Board of Directors is soliciting your proxy to vote at our special meeting (the “Annual“Special Meeting”) toof stockholders or any adjournment or postponement of the Special Meeting. The Special Meeting will be held at the Westin South Coast Plaza, 686 Anton Blvd., Costa Mesa, California 92626 on Thursday, May 27, 2004 beginningMonday, January 10, 2005, at 10:00 a.m., local time, and at any adjournments thereof. The Annual Meeting has been called to consider and vote upon the election of seven directors and to consider any other business as may properly come before the Annual Meeting. This Proxy Statement and the accompanying proxy are being sent to stockholders of record on or about April 19, 2004.our principal executive offices located at 26972 Burbank, Foothill Ranch, California.

VOTING BY STOCKHOLDERSVoting

Only holdersYou may vote at the Special Meeting if you were a stockholder of record of the Company’s common stock at the close of business on April 9,December 3, 2004, are entitled to receive notice of, and to vote at, the Annualrecord date for the Special Meeting. On that date, there were 25,631,32434,660,657 shares of the Company’sour Class A Common Stock $.10 par value, and 4,502,8331,500,000 shares of the Company’sour Class B Common Stock $.10 par value, issued and outstanding. There are currently no shares held as treasury stock.

Holders of our Class A Common Stock are entitled to one vote per share and, while both theour Class A Common Stock and our Class B Common Stock vote together as a single class, holders of our Class B Common Stock are entitled to two votes per share. According to the Company’sour Restated Certificate of Incorporation, as amended, stockholders maydo not cumulate theirhave any cumulative voting rights.

Quorum

The presence, in person or by proxy, of the holders of a majority of the shares of our capital stock (which includes each share of our Class A Common Stock and Class B Common Stock (on a converted basis)) issued and outstanding and entitled to vote is necessary to constitute a quorum at the AnnualSpecial Meeting. Assuming that a quorum is present, the holders of a majority of the votes cast at the Annual Meeting will be able to elect all of the directors.

Abstentions and Non-votes

The shares represented by each properly executed unrevoked proxy received in time for the AnnualSpecial Meeting will be voted in accordance with the instructions specified therein, or, intherein. In the absence of instructions, the unrevoked proxies will be votedFORProposalProposals 1, 2 and 3 and will be voted in accordance with the discretion of the proxy holders upon all other matters which may properly come before the AnnualSpecial Meeting. Any proxy received by the Company may be subsequently revoked by the stockholder any time before it is voted at the meeting either by delivering a subsequent proxy or other written notice of revocation to the Company at its above address or by attending the meeting and voting in person. Pursuant to Delaware law, abstentions are treated as present and entitled to vote for purposes of determining a quorum at the AnnualSpecial Meeting, and therefore would have the effect of a vote against a proposal such as the election of directors, which requires the majority of the votes present and entitled to vote. A broker non-vote on a proposal is considered not entitled to vote on that matter and thus is not counted in determining whether a proposal requiring approval of a majority of the shares present and entitled to vote has been approved or whether a majority of the vote of the shares present and entitled to vote has been cast. Broker non-votes

Revocation of Proxy

Any proxy received by our company may be subsequently revoked by the stockholder any time before it is voted at the meeting either by delivering a subsequent proxy or other written notice of revocation to our company at our principal executive offices or by attending the Special Meeting and voting in person.

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The Financing

Background of the Financing (see discussion on page 7)

Beginning in the third quarter of our 2002 fiscal year, we began experiencing a significant decline in sales in our Wet Seal division and these declines continue to date. The continuing decline in sales has led to significant losses and the deterioration in our working capital position, raising concerns about our ability to fund our operations and to continue as a going concern. Despite a private placement completed in June 2004, which raised $27,200,000 in gross proceeds, we continue to experience liquidity problems which impact our ability to successfully sell merchandise in our stores and, if not solved, could lead to a bankruptcy filing by our company.

In August 2004, our Board of Directors established a special committee of independent directors (the “Special Committee”), consisting of Henry Winterstern, as chairman, Alan Siegel and Howard Gross, to analyze alternatives to enhance stockholder value. In September 2004, the Special Committee engaged Rothschild Inc. (“Rothschild”) to provide the Special Committee and, at its request, our company with financial advisory services as the Special Committee evaluated a series of business strategies. Over the next several weeks, the Special Committee and Rothschild reviewed and analyzed a number of business transactions including a transaction proposed by a competitor of our company.

On October 31, 2004, the advisor to S.A.C. Capital Associates, LLC (“SAC”), a participant in our June private placement, delivered a term sheet to us in connection with the transactions described in this proxy statement. After evaluating the term sheet and engaging in discussions with SAC and its representatives, the Special Committee unanimously recommended that our Board of Directors pursue the financing alternative presented by the advisor to SAC primarily due to the provision of interim financing for our company, the aggregate amount of capital to be provided at closing and the likelihood of closing. In the opinion of the Special Committee, the financing alternative offered by our competitor did not provide us with the sufficient short term and long term capital or certainty of closure necessary for the continued viability of our company.

On November 3, 2004, we entered into an exclusivity agreement with the advisor to SAC pursuant to which we agreed not to accept any competing offer or proposal (other than from the investor group) until November 14, 2004. On November 8, 2004, our entire Board of Directors participated in a telephonic meeting to consider the terms of the financing proposal with SAC and the other participating investors (the “Original Investors”). During this meeting, Rothschild provided our Board of Directors with an analysis of the available alternatives and of the merits of the financing with the Original Investors in light of the existing alternatives. In summary, Rothschild advised our Board of Directors that the Original Investors’ transaction would:

For a more detailed discussion of the Rothschild presentation see page 8.

On November 8, 2004, our Board of Directors, based on the unanimous recommendation of the Special Committee, unanimously approved and authorized the financing transactions with the Original Investors. On November 9, 2004, we entered into a securities purchase agreement (the “Original Securities Purchase Agreement”) with the Original Investors, pursuant to which we agreed to issue seven (7) year secured convertible

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notes (convertible into shares of our Class A Common Stock), additional investment right warrants (exercisable into additional secured convertible notes) (the “AIRs”) and warrants (exercisable into shares of our Class A Common Stock). Pursuant to the original agreements with the Original Investors, we had the right to require the Original Investors to exercise the AIRs into additional secured convertible notes following the six month and one year anniversary of the closing, which would have provided our company with $15,850,000 in proceeds.

Following the execution of the Original Securities Purchase Agreement, our Board of Directors authorized Henry Winterstern to continue negotiations with certain of the Original Investors regarding their ability to provide additional funds at closing so as to enable our company to have additional liquidity to implement our turn-around strategy for the Wet Seal division at an earlier stage. On December 13, 2004, we entered into an amended and restated Securities Purchase Agreement with the Original Investors and certain additional investors (the “Amended Securities Purchase Agreement”) and other related documents. Under terms of the Amended Securities Purchase Agreement, (i) we have increased the aggregate principal amount of the secured convertible notes issuable at closing from $40,000,000 to $56,000,000, at an initial conversion price of $1.50 per share, (ii) we have eliminated the AIRs and (iii) we have increased the aggregate number of shares of Class A Common Stock issuable upon exercise of the warrants from 13,600,000 to 14,900,000 (collectively, the “Principal Financing”). Moreover, as a result of the lower initial conversion price for the additional $16,000,000 in principal amount of secured convertible notes, when compared to the initial conversion prices of the AIRs, the current stockholders’ percentage ownership in our company will be further diluted by approximately 1,267,000 shares.

Prior to entering into the amended financing agreements with the Investors, our company consulted with Rothschild. Rothschild, in its written report to our Board of Directors, dated December 9, 2004, recommended that we proceed with the amended transaction after considering the relative value associated with the additional liquidity available at closing versus the incremental dilutive impact that the amended transaction will have on our stockholders. See “Class A Common Stock Ownership Limitation and Your Dilution” for a discussion of the dilutive effect of the Principal Financing on your ownership interest in our company.

The Investors

The Investors in our financing transactions include S.A.C. Capital Associates, LLC, GMM Capital, LLC, Goldfarb Capital Partners LLC, Mr. Charles Phillips, Mr. Eli Wachtel, WLSS Capital Partners, LLC, Smithfield Fiduciary LLC, D.B. Zwirn Special Opportunities Fund, L.P, D.B. Zwirn Special Opportunities Fund, Ltd. and Riverview Group, LLC (collectively, the “Investors”). The Investors may subsequently transfer the convertible notes and the warrants in accordance with applicable securities laws.

The Interim Financing(see discussion on page 9)

In connection with the execution of the Original Securities Purchase Agreement, we entered into a $10,000,000 bridge loan credit facility. The Original Investors agreed to provide us with this loan to enable our company to have access to sufficient capital to meet our financial obligations through closing. Upon execution of the Amended Securities Purchase Agreement, $2,500,000 of the aggregate principal amount of the bridge loan was assigned by certain of the Original Investors to the new participants in the financing (collectively, the “Bridge Loan Participants”).

The annual interest rate on this loan is 25% for the term of the facility. The maturity date is the earlier of (i) February 28, 2005 (or as determined in the sole discretion of the majority in principal amount of the Bridge Loan Participants, March 31, 2005 or April 29, 2005), (ii) the closing of the Principal Financing or (iii) the termination of the Amended Securities Purchase Agreement. The loan is secured by a junior lien against all of the collateral that currently secures all borrowing obligations owed to our current lenders under our existing working capital and term loan credit facilities. In connection with this loan, certain of our current lenders, including Fleet Retail Group, Inc. and Fleet National Bank (currently Bank of America Corporation) and Back Bay Capital Funding

3

LLC, entered into an intercreditor agreement and a subordination agreement, pursuant to which the Bridge Loan Participants agreed, among other things, to subordinate their respective rights under the bridge loan credit facility to our debt obligations under our current credit facilities.

At the closing of the Principal Financing, the outstanding principal amount of the bridge loan (together with accrued and unpaid interest) will be applied as a partial payment to the aggregate purchase price for the securities.

We obtained the requisite consents from our current lenders to enter into the Amended Securities Purchase Agreement and the related documents.

Material Terms of the Convertible Notes(see discussion on page 10)

Pursuant to the terms of the Amended Securities Purchase Agreement, we have agreed to issue $56,000,000 in aggregate principal amount of secured seven (7) year convertible notes (the “Convertible Notes”). The Convertible Notes will bear interest at the federal midterm rate as defined in the Internal Revenue Code of 1986, as amended (the “Code”), for the month in which the Convertible Notes will be issued (currently 3.56%) and such interest will be payable in cash or may be capitalized on the outstanding principal amount at our option; provided, that no capitalized interest may be converted into shares of Class A Common Stock and any unpaid capitalized interest will cease to exist upon such conversion. The Convertible Notes are convertible initially into 37,333,333 shares of our Class A Common Stock at an initial conversion price of $1.50 per share.

The conversion price of the Convertible Notes will have full-ratchet anti-dilution protection which means the conversion price will be adjusted from time to time in the event of the issuance of shares of our Class A Common Stock, or securities convertible or exercisable into shares of our Class A Common Stock, at prices below the conversion price of the Convertible Notes. In the event such an adjustment is required, the then current conversion price of the Convertible Notes will be reduced to the price per share at which the Class A Common Stock has been issued or upon which the convertible security (e.g. options, warrants, convertible debt instruments) may be converted or exercised into Class A Common Stock in the future.

Material Terms of the Warrants(see discussion on page 12)

As a condition to the execution of the Original Securities Purchase Agreement, on November 9, 2004, we issued to the Original Investors the Series A Warrants which are exercisable for 2,300,000 shares of our Class A Common Stock for a period of four (4) years with an initial exercise price of $1.75 per share. Upon the execution of the Amended Securities Purchase Agreement, each Original Investor delivered to our company its original Series A Warrants for cancellation and we simultaneously issued to each Investor new Series A Warrants in accordance with the Amended Securities Purchase Agreement.

In addition, we have agreed to issue to the Investors three additional tranches of warrants exercisable into an aggregate of 12,600,000 shares of our Class A Common Stock (collectively, the “Warrants”) as follows:

The exercise prices of the Warrants will also have full-ratchet anti-dilution protection which means the respective exercise prices of the Warrants will be adjusted from time to time in the event of the issuance of shares

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of our Class A Common Stock or securities convertible or exercisable into shares of our Class A Common Stock at prices below the respective exercise prices of the Warrants. In the event such an adjustment is required, the then current exercise price will be reduced to the price per share at which the Class A Common Stock has been issued or upon which the convertible security (e.g. options, warrants, convertible debt instruments) may be converted or exercised into Class A Common Stock in the future.

Class A Common Stock Ownership Limitations and Your Dilution(see discussion on page 14)

Pursuant to the terms of the Convertible Notes and the Warrants, a holder of such notes or warrants is prohibited from converting or exercising the security if as a result such holder (together with its affiliates) would beneficially own (as that term is defined in Rule 13d-3 of the Securities Exchange Act of 1934 (as amended)) more than 9.99% of our outstanding Class A Common Stock (or a lower percentage pursuant to notice from the applicable Investor).

NEVERTHELESS, YOU SHOULD BE AWARE THAT IF (I) ALL OF THE CONVERTIBLE NOTES ARE CONVERTED, (II) THE WARRANTS ARE EXERCISED IN FULL AND (III) ALL 10,000,000 SHARES OF OUR CLASS A COMMON STOCK ARE ISSUED UNDER OUR NEW STOCK INCENTIVE PLAN, THE CURRENT STOCKHOLDERS’ PERCENTAGE OWNERSHIP OF OUR CLASS A COMMON STOCK, ON A FULLY DILUTED BASIS, WILL BE REDUCED FROM 76.4% TO 32.9%.

Board of Directors Matters

We have agreed, as conditions to the closing of our Principal Financing, that our Board of Directors will consist of no more than nine members and that the Investors must be satisfied with the identity of (i) the Chairman of the Board of Directors of our company and (ii) at least a number of directors equal to one less than the minimum number of directors that would constitute a majority of the Board of Directors of our company at closing. Our Board of Directors currently consists of seven members and at this time there is no intention to fill any vacancies on our Board of Directors.

Consulting Agreements and Other Arrangements

The terms of the Original Securities Purchase Agreement obligated us to use our best efforts to engage the services of Michael Gold and Thomas Brosig, two well regarded retail consultants, to assist in the operations of our business. Mr. Gold, who operates over 400 retail clothing stores in Canada and the United States, currently serves as a consultant for merchandising initiatives primarily in The Wet Seal division. As of the date of this proxy statement, we have not finalized the terms of the consulting agreement with Mr. Gold. We have retained the consulting company led by Thomas Brosig, RT Management & Consulting Services, LLC, to provide an on-site analysis of all non-merchandising departments, administrative costs, employee and compensation issues and organizational structure and information systems. We have also engaged RT Management to conduct a physical inspection of our buildings, equipment and distribution centers.

Concurrently with this transaction, we are also reevaluating our merchandizing history, the viability of each of our stores, the value of our real estate and leases and the strengths and weaknesses of our general operations. We are engaging consultants to assist in this analysis and will be preparing a revised business plan in connection therewith, which may include the closing of certain stores.

The Board of Directors has resolved that, at the closing of our Principal Financing, Mr. Winterstern, Chairman of our Board of Directors, will be granted 250,000 shares of restricted Class A Common Stock.

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Our Business Strategy Following the Principal Financing

The purpose of the Principal Financing and entering into arrangements with Michael Gold and RT Management and other management additions which may occur is to implement our strategy to return our company to profitability. We believe that the Principal Financing will provide us with the capital needed to effect necessary store closures while maintaining appropriate inventory levels at stores we intend to keep open. In addition, it will allow us to absorb operating losses that may be incurred while we implement our plans. With regard to our merchandise, our merchandising strategy will focus on price, while increasing our sales per square foot by offering fresh inventory reflecting current fashion trends.

The Proposals

We seek the approval of the following proposals from our stockholders:

The ratification of the issuance of the Series A Warrants and the approval of the issuance of our new secured convertible notes, warrants and the shares of our Class A Common Stock that are issuable upon the conversion of our new secured convertible notes and the exercise of our new warrants

Due to the significant number of shares of Class A Common Stock that may be issuable pursuant to the terms of the Convertible Notes and the Warrants, we are required by applicable rules of our trading market, the Nasdaq National Market, to seek your approval of the issuance of these securities and the underlying shares of Class A Common Stock.

WE WILL NOT BE ABLE TO COMPLETE OUR FINANCING TRANSACTIONS WITH THE INVESTORS DESCRIBED IN THIS PROXY STATEMENT UNLESS YOU APPROVE THIS PROPOSAL AND PROPOSAL 2.

Charter Amendment to Increase the Number of Authorized Shares of our Class A Common Stock

We do not have enough authorized shares of Class A Common Stock to satisfy the conversion and exercise rights associated with securities to be issued in the Principal Financing. Accordingly, we seek your approval to amend our Restated Certificate of Incorporation, as amended, to increase the number of authorized shares of Class A Common Stock.

WE WILL NOT BE ABLE TO COMPLETE OUR FINANCING TRANSACTIONS WITH THE INVESTORS DESCRIBED IN THIS PROXY STATEMENT UNLESS YOU APPROVE THIS PROPOSAL AND PROPOSAL 1.

The Wet Seal, Inc. 2005 Stock Incentive Plan

We believe it is essential to attract turn-around and merchandising management to improve the operations of our Wet Seal stores and the overall financial position of our company. In order to do so, we believe that it is appropriate to provide such individuals with compensation based upon the operating performance of our company. It is our intention to use The Wet Seal, Inc. 2005 Stock Incentive Plan (the “Plan”) to offer equity based incentive arrangements to these managers and consultants. Therefore, we seek your approval of the Plan.

Board Recommendations

THE BOARD OF DIRECTORS OF OUR COMPANY UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF PROPOSALS 1, 2 AND 3.

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PROPOSAL 1

RATIFICATION OF THE ISSUANCE OF THE SERIES A WARRANTS AND APPROVAL OF THE ISSUANCE OF OUR NEW SECURED CONVERTIBLE NOTES, WARRANTS AND THE SHARES OF OUR CLASS A COMMON STOCK THAT ARE ISSUABLE UPON THE CONVERSION OF OUR NEW SECURED CONVERTIBLE NOTES AND EXERCISE OF OUR NEW WARRANTS

The Financing

Background of the Financing

Beginning in the third quarter of fiscal year 2002, we began experiencing a significant decline in sales in our Wet Seal division and these declines continue. The continuing decline in sales has led to significant losses and the deterioration in our working capital position and has raised concerns about our ability to fund our operations and to continue as a going concern. Despite a private placement of our Class A Common Stock completed on June 29, 2004, which raised $27,200,000 in gross proceeds, we continue to experience liquidity issues. At the end of the second quarter of fiscal year 2004, we wrote down our deferred tax assets and took other non-cash charges resulting from the impairment of certain store asset values as required by generally accepted accounting principles. Moreover, our recent Fall back-to-school merchandising efforts have not produced anticipated results. As a result, the third quarter of fiscal year 2004 represented our ninth consecutive quarter reflecting negative comparable store sales and operating losses. For a more detailed discussion of our recent financial position, please see our Quarterly Report on Form 10-Q for the fiscal period ending October 31, 2004, as filed with the SEC on December 9, 2004.

On August 18, 2004, our Board of Directors established a Special Committee of independent directors of our company to analyze appropriate alternatives to enhance stockholder value. The Special Committee was composed of Howard Gross, Alan Siegel and Henry Winterstern, as Chairman. The Special Committee engaged the law firm of Willkie Farr & Gallagher LLP to serve as its legal counsel, and following a series of interviews with investment banking firms, engaged Rothschild in September 2004 to provide financial advisory services. Also, beginning in August 2004, our Board of Directors commenced holding bi-weekly meetings during which the directors were provided with information regarding the financial condition and operations of our company and the strategic alternatives being considered by the Special Committee with the assistance of Rothschild.

After we issued our press release announcing the formation of the Special Committee and our retention of Rothschild, the Special Committee and Rothschild contacted, or were contacted by, several interested parties regarding business transactions. One of the interested parties was a competitor interested in acquiring most of the operations (including the operating leases) of our Wet Seal division. However, none of these indications of interest (other than the SAC proposal) were made on business terms that were acceptable in the opinion of the Special Committee.

In October 2004, the Special Committee began discussions regarding financing alternatives with the advisor to SAC, a participant in our June 2004 private placement. Following its execution of a customary confidentiality and standstill agreement, the Special Committee began negotiations with the advisor to SAC regarding the sale and purchase of convertible notes, investment right warrants and warrants as well as the investor group’s ability to offer interim financing prior to the closing of the proposed transaction.

On October 31, 2004, the advisor to SAC delivered a term sheet to us in connection with the transactions described in this proxy statement. The Special Committee unanimously recommended that our Board of Directors pursue the financing alternative presented by the advisor to SAC, instead of the financing alternative proposed by our competitor, primarily due to (i) the commitment to provide interim financing for our company, (ii) the provision of sufficient capital to improve our liquidity position and enable us to attract and retain management with retail and turn-around experience and (iii) a higher likelihood of closure in comparison with our competitor’s proposal. On November 3, 2004, we entered into an exclusivity arrangement with the advisor to SAC, pursuant to which we agreed not to accept any competing offer or proposal from any other entity (other than the Investors) until November 14, 2004.

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On November 8, 2004, our entire Board of Directors participated in a telephonic meeting to consider the terms of the financing arrangements offered by the Original Investors. The Special Committee unanimously concluded that the transaction with the Original Investors was the best alternative available to our company and our stockholders and recommended to the Board of Directors that it approve this transaction. At the meeting, after considering the recommendation of the Special Committee, our Board of Directors unanimously approved the terms of the financing with the Investors, and, subject to stockholder approval, authorized our company to enter into the transactions with the Investors. On November 9, 2004, we entered into the Original Securities Purchase Agreement with the Original Investors, pursuant to which we agreed to issue seven (7) year secured convertible notes (convertible into shares of our Class A Common Stock), AIRs and warrants (exercisable into shares of our Class A Common Stock). Upon the execution of the Original Securities Purchase Agreement, the Special Committee was disbanded.

Following the execution of the Original Securities Purchase Agreement, our Board of Directors authorized Henry Winterstern to continue negotiations with certain of the Original Investors regarding their ability to provide additional funds at closing so as to enable our company to have additional liquidity to implement our turn-around strategy for the Wet Seal division at an earlier stage. On December 13, 2004, we entered into an amended and restated Securities Purchase Agreement with the Original Investors and certain additional investors (the “Amended Securities Purchase Agreement”) and other related documents. Under the terms of the Amended Securities Purchase Agreement, (i) we have increased the aggregate principal amount of the secured convertible notes issuable at closing from $40,000,000 to $56,000,000, at an initial conversion price of $1.50 per share, (ii) we have eliminated the AIRs and (iii) we have increased the aggregate number of shares of Class A Common Stock issuable upon exercise of the warrants from 13,600,000 to 14,900,000. Moreover, as a result of the lower initial conversion price of the additional $16,000,000 in principal amount of secured convertible notes, when compared to the initial conversion prices of the AIRs, the current stockholders’ percentage ownership in our company will be further diluted by approximately 1,267,000 shares.

The Rothschild Presentation

Original Transaction Structure

In its presentation at our Board of Directors meeting on November 8, 2004, Rothschild offered its analysis of the available alternatives and the merits of the financing with the Original Investors in light of the existing alternatives. In summary, Rothschild advised our Board of Directors that the transaction with the Original Investors would:

Some of the negative considerations of the financing with the Original Investors identified by Rothschild included:

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Amended Transaction Structure

Prior to entering into the amended financing agreements with the Investors, our company consulted with Rothschild. Rothschild, in its written report to our Board of Directors, dated December 9, 2004, recommended that we proceed with the amended transaction after considering the relative value associated with the additional liquidity available at closing versus the incremental dilutive impact that the amended transaction will have on our stockholders. See “Class A Common Stock Ownership Limitation and Your Dilution” for a discussion of the dilutive effect of the Principal Financing on your ownership interest in our company.

Our Board of Directors determined that the benefits of the financing proposals presented by the Original Investors and the Investors outweighed its negative considerations due to the amount of financing provided by the Investors in the Principal Financing, the commitment to provide pre-closing financing, the higher degree of certainty of closure and the possibility to enhance stockholder value in connection with executing a successful turn-around strategy for the Wet Seal division.

The Investors

The Investors for the Principal Financing include S.A.C. Capital Associates, LLC, GMM Capital, LLC, Goldfarb Capital Partners LLC, Mr. Charles Phillips, Mr. Eli Wachtel, WLSS Capital Partners, LLC, Smithfield Fiduciary LLC, D.B. Zwirn Special Opportunities Fund, L.P, D.B. Zwirn Special Opportunities Fund, Ltd. and Riverview Group, LLC. The Investors may subsequently transfer the Convertible Notes and the Warrants in accordance with applicable securities laws.

The Interim Financing

In an effort to provide us with additional liquidity through the closing date of the Principal Financing, at the time we signed the Original Securities Purchase Agreement, we entered into an interim financing facility with the Bridge Loan Participants in the form of a $10,000,000 bridge term loan (the “Bridge Facility”). The Wet Seal, Inc. is the lead borrower under the Bridge Facility, with The Wet Seal Retail, Inc. and Wet Seal Catalog, Inc. as additional borrowers (collectively, the “Borrowers”). Wet Seal GC, Inc. is the guarantor for the Bridge Facility (the “Guarantor”) and SAC serves as the Administrative Agent and Collateral Agent. Upon execution of the Amended Securities Purchase Agreement, $2,500,000 of the aggregate principal amount of the bridge loan was assigned by certain of the Original Investors to the new participants in the financing.

The bridge loan bears interest at an annual rate of 25% fixed for the term of the Bridge Facility and interest accrues monthly, in arrears. The loan will become due and payable on the earlier of (i) February 28, 2005 (or as determined in the sole discretion of the majority in principal amount of the Bridge Loan Participants, March 31, 2005 or April 29, 2005), (ii) the closing of the Principal Financing and (iii) the termination of the Amended Securities Purchase Agreement. The Bridge Loan Participants have agreed to subordinate any acceleration claims with respect to the Bridge Facility pursuant to the terms of (i) the Intercreditor and Lien Subordination Agreement dated as of November 9, 2004, by and among SAC Capital Associates, as Administrative Agent for the lenders and Collateral Agent under the Bridge Facility, the Borrowers, the Guarantor and Fleet Retail Group, Inc., as Administrative Agent and Collateral Agent under the Existing Credit Agreements, and (ii) the Subordination Agreement, dated as of November 9, 2004, by and among SAC Capital Associates, as Collateral Agent under the Bridge Facility, the Borrower and Fleet Retail Group, Inc., as agent for the lenders, to be amended and restated at the closing of the Principal Financing (collectively, the “Subordination Agreements”).

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The borrowings under the Bridge Facility are secured by a junior lien against all of the collateral that currently secures all of the borrowing obligations owed to the Borrowers’ current lenders (the “Existing Lenders”) under existing working capital and term loan credit facilities (the “Existing Credit Agreements”). The respective rights of the Existing Lenders and the lenders under the Bridge Facility in the shared collateral are set out in the Subordination Agreements.

At the closing of the Principal Financing, the outstanding principal amount of the bridge loan (together with accrued and unpaid interest) will be applied as a partial payment to the aggregate purchase price for the securities.

We obtained the requisite consents from our Existing Lenders to enter into the Amended Securities Purchase Agreement and the related documents.

Material Terms of the Convertible Notes

Pursuant to the terms of the Amended Securities Purchase Agreement, we have agreed to issue $56,000,000 in aggregate principal amount of Convertible Notes to the Investors. For a complete description of the Convertible Notes, please see the Form of Secured Convertible Note attached as Exhibit 10.3 to our Transaction 8-K Report. The Convertible Notes will be issued pursuant to an Indenture. It is anticipated that The Bank of New York will serve as Indenture Trustee under the Indenture.

The Convertible Notes:

Anti-dilution Protection

The conversion price of the Convertible Notes will have full-ratchet anti-dilution protection which means the conversion price will be adjusted from time to time in the event of the issuance of shares of our Class A Common Stock, or securities convertible or exercisable into shares of our Class A Common Stock, at prices below the conversion price of the Convertible Notes. In the event such an adjustment is required, the then current conversion price of the Convertible Notes will be reduced to the price per share at which the Class A Common Stock has been issued or upon which the convertible security (e.g. options, warrants, convertible debt instruments) may be converted or exercised into Class A Common Stock in the future. The Indenture may include additional customary anti-dilution provisions.

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Optional Redemption upon a Change of Control

Upon a “change of control” (as defined in the Form of Secured Convertible Note), the Investors will have the right to cause us to redeem all or any portion of the Convertible Notes at a price equal to the greater of:

To the extent not redeemed upon a “change in control,” each Investor shall have the right to cause the ultimate parent company of the acquiring or surviving company in the change of control to issue new notes in replacement of the Convertible Notes with terms (including, without limitation, conversion rights, security, rank, covenants and events of defaults) equivalent to those contained in the Convertible Notes.

Covenants

The Convertible Notes will impose certain customary affirmative and negative covenants upon our company and our subsidiaries, including but not limited to:

Events of Default

Under the terms of the Convertible Notes an event of default includes, but is not limited to, the following events:

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Optional Redemption upon an Event of Default

Upon an event of default, Investors holding at least 25% of the aggregate principal amount of the Convertible Notes then outstanding (the “25% Holders”) will have the right to cause us to redeem all or any portion of the Convertible Notes at a price equal to the greater of:

Material Terms of the Warrants

Pursuant to the terms of the Amended Securities Purchase Agreement, we have issued to the Investors Series A Warrants and have agreed to issue Series B Warrants, Series C Warrants and Series D Warrants upon the closing of the Principal Financing. For a complete description of the Warrants, please see the Form of Series A Warrants, Series B Warrants, Series C Warrants and Series D Warrants attached as Exhibits 10.4 through 10.7 to our Transaction 8-K Report. The Warrants may be issued pursuant to a warrant agreement.

Series A Warrants

As a condition to the execution of the Original Securities Purchase Agreement, on November 9, 2004, we issued to the Original Investors the Series A Warrants which are exercisable for 2,300,000 shares of our Class A Common Stock for a period of four (4) years, with an initial exercise price of $1.75 per share. Upon the execution of the Amended Securities Purchase Agreement, each Original Investor delivered to our company its original Series A Warrants for cancellation and we simultaneously issued to each Investor new Series A Warrants in accordance with the Amended Securities Purchase Agreement.

The Series A Warrants may be exercised for the period beginning on the earlier of (i) the approval of our stockholders of this Proposal and Proposal 2 or (ii) May 9, 2005.

Series B, Series C and Series D Warrants

The Series B, Series C and Series D warrants will be issued at the closing of the Principal Financing with the Investors. The Series B Warrants may be exercised for a period of four (4) years following the date of issuance to purchase up to 3,400,000 shares of our Class A Common Stock at an initial exercise price per share equal to $2.25. The Series C Warrants may be exercised for a period of five (5) years following the date of issuance to purchase up to 4,500,000 shares of our Class A Common Stock at an initial exercise price per share equal to $2.50. The Series D Warrants may be exercised for a period of five (5) years following the date of their issuance to purchase up to 4,700,000 shares of our Class A Common Stock at an initial exercise price per share equal to $2.75. Under the Amended Securities Purchase Agreement, the aggregate number of shares of Class A Common Stock issuable pursuant to the terms of the Series D Warrants was increased from 3,400,000 shares to 4,700,000 shares.

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Anti-dilution Protection

The exercise prices of the Warrants will also have full-ratchet anti-dilution protection which means the respective exercise prices of the Warrants will be adjusted from time to time following the issuance of shares of our Class A Common Stock or securities convertible or exercisable into shares of our Class A Common Stock at prices below the respective exercise prices of the Warrants. In the event such an adjustment is required, the then current exercise price will be reduced to the price per share at which the Class A Common Stock has been issued or upon which the convertible security (e.g. options, warrants, convertible debt instruments) may be converted or exercised into Class A Common Stock in the future.

Material Terms of the Amended Registration Rights Agreement

Pursuant to the terms of the Original Securities Purchase Agreement, we entered into a registration rights agreement with the Original Investors, which was subsequently amended and restated simultaneously with the Amended Securities Purchase Agreement (the “Amended Registration Rights Agreement”). Pursuant to the Amended Registration Rights Agreement we granted to each Investor registration rights with respect to the resale of the Convertible Notes, the Warrants and the shares of our Class A Common Stock issuable upon the conversion and exercise of such securities.

The Amended Registration Rights Agreement requires us to file, no later than thirty (30) calendar days after the closing of the Principal Financing (the “Closing Date”) or the termination of the Amended Securities Purchase Agreement (the “Termination Date”), a registration statement with the SEC on Form S-3. We have agreed to use our reasonable efforts to have the registration statement declared effective by the SEC within ninety (90) calendar days (or in the event the SEC reviews the registration statement and requires us to make modifications, one hundred and twenty (120) calendar days) after the Closing Date or the Termination Date. In the event that registration on Form S-3 is unavailable, we are required to register the resale of the securities on another appropriate form reasonably acceptable to the Investors and undertake to file a registration on Form S-3 as soon as such form is available.

In the event we (i) fail to file a registration statement by the applicable deadline, (ii) fail to have a registration statement declared effective by the applicable deadline, or (iii) due to a breach of our obligations under the Amended Registration Rights Agreement, cause a registration statement to become unavailable to an Investor for the resale of covered securities (each a “Registration Delay”), we are required to pay, upon the occurrence of a Registration Delay and every thirtieth day thereafter until such Registration Delay is cured, to the applicable holder, an amount equal to two percent (2%) of the principal amount at which any Convertible Note was issued or the initial conversion price paid for the shares of our Class A Common Stock issued pursuant to those securities, as the case may be, and two percent (2%) of the exercise price of a Warrant or related shares of Class A Common Stock issuable upon the exercise of a Warrant.

At any time after a registration statement has been declared effective by the SEC, we are entitled to delay the disclosure of material non-public information and thereby temporarily suspend the registration statement, if such disclosure is, in the good faith judgment of our Board of Directors, not in the best interest of our company, provided that no such grace period may exceed fifteen (15) consecutive days and the aggregate of such grace periods may not exceed thirty (30) days in any 365-day period. We will pay for the costs associated with any registration under the Amended Registration Rights Agreement.

Rights of First Refusal for Future Equity Issuances

For a period of three years following the closing of the Principal Financing, the Investors will be granted a right of first refusal with respect to any equity or equity-linked financing by our company, subject to certain participation rights held by existing stockholders which were granted under the Securities Purchase Agreement, dated June 29, 2004, entered into in connection with the private placement of our Class A Common Stock.

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Conditions Precedent

The obligations of the Investors to consummate the Principal Financing are subject to a number of conditions, including the following:

For a detailed discussion of each of the conditions precedent to the closing of the Principal Financing, please refer to the Amended Securities Purchase Agreement attached as Exhibit 10.1 to our Transaction 8-K Report.

Even if stockholder approval is obtained for the Principal Financing, the Principal Financing may not close if the closing conditions are not met or waived.

Consulting Agreements and Other Arrangements

The terms of the Original Securities Purchase Agreement obligated us to use our best efforts to engage the services of Michael Gold and Thomas Brosig, two well regarded retail consultants, to assist in the operations of our business. Mr. Gold, who operates over 400 retail clothing stores in Canada and the United States, currently serves as a consultant for merchandising initiatives primarily in The Wet Seal division. As of the date of this proxy statement, we have not finalized the terms of the consulting agreement with Mr. Gold. We have retained the consulting company led by Thomas Brosig, RT Management & Consulting Services, LLC, to provide an on-site analysis of all non-merchandising departments, administrative costs, employee and compensation issues and organizational structure and information systems. We have also engaged RT Management to conduct a physical inspection of our buildings, equipment and distribution centers.

Concurrently with this transaction, we are also reevaluating our merchandizing history, the viability of each of our stores, the value of our real estate and leases and the strengths and weaknesses of our general operations. We are engaging consultants to assist in this analysis and will be preparing a revised business plan in connection therewith, which may include the closing of certain stores.

The Board of Directors has resolved that, at the closing of our Principal Financing, Mr. Winterstern, Chairman of our Board of Directors, will be granted 250,000 shares of restricted Class A Common Stock.

Our Business Strategy Following the Principal Financing

The purpose of the Principal Financing and entering into arrangements with Michael Gold and RT Management and other management additions which may occur is to implement our strategy to return our company to profitability. We believe that the Principal Financing will provide us with the capital needed to effect necessary store closures while maintaining appropriate inventory levels at stores we intend to keep open. In

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addition, it will allow us to absorb operating losses that may be incurred while we implement our plans. With regard to our merchandise, our merchandising strategy will focus on price, while increasing our sales per square foot by offering fresh inventory reflecting current fashion trends.

Class A Common Stock Ownership Limitation and Your Dilution

Pursuant to the terms of the Convertible Notes and the Warrants, each holder is prohibited from converting or exercising any such securities if as a result such holder (together with its affiliates) would beneficially own (as that term is defined in Rule 13d-3 of the Securities Exchange Act of 1934 (as amended)) more than 9.99% of our outstanding Class A Common Stock (or a lower percentage pursuant to notice from the applicable Investor).

However, assuming all of the shares of Class A Common Stock issuable upon conversion or exercise of the Convertible Notes or the Warrants were issued absent the ownership limitation agreed to by the Investors, your percentage equity ownership in our company would decrease significantly. In addition, the issuance of additional shares would significantly dilute your voting rights as a holder of our Class A Common Stock. The table below depicts our issued and outstanding shares of Class A Common Stock, Class B Common Stock and common stock equivalents as of December 9, 2004 and, on a pro forma basis, the Class A Common Stock potentially issuable under the terms of the Principal Financing.

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YOU SHOULD BE AWARE THAT IF (I) ALL OF THE CONVERTIBLE NOTES ARE CONVERTED, (II) THE WARRANTS ARE EXERCISED IN FULL AND (III) ALL 10,000,000 SHARES OF OUR CLASS A COMMON STOCK ARE ISSUED UNDER OUR NEW PLAN, THE CURRENT STOCKHOLDERS’ PERCENTAGE OWNERSHIP OF OUR CLASS A COMMON STOCK, ON A FULLY DILUTED BASIS, WILL BE REDUCED FROM 76.4% TO 32.9%.

Although the number of shares of Class A Common Stock potentially issuable under the terms of the Principal Financing is significant, our Board of Directors has determined, in consultation with its advisors, that the financing alternative presented by the Investors represents the best alternative for our company in light of our financial condition.

Exclusivity Agreement and Payment of Expenses

DELIVERY OF PROXY MATERIALSWe have agreed that during the period from the signing of the Original Securities Purchase Agreement until the closing of the Principal Financing, we will not, and will cause our directors, officers, agents, representatives, affiliates, stockholders and any other person acting on our behalf not to, directly or indirectly, (i) solicit offers, inquiries or proposals for, or entertain any offer, inquiry or proposal to enter into: (A) a merger, consolidation or other business combination involving our company, (B) an acquisition of 5% or more of the then-outstanding equity securities of our company, (C) an acquisition of equity securities, or of debt securities or other securities convertible into or exchangeable for equity securities of our company, which would, after giving effect to such conversion or exchange, constitute more than 5% of the outstanding equity securities of our company, (D) the issuance of debt securities with no equity component or related equity component of, or other borrowing by, our company in a principal amount in excess of $10,000,000, (E) a sale, transfer, conveyance, lease or disposal of all or any significant portion of the assets of our company in one transaction or a series of related transactions (other than sales of inventory in the ordinary course of business), (F) a liquidation or dissolution of our company or the adoption of a plan of liquidation or dissolution by our company, (G) the occurrence of individuals who at the beginning of such period constituted the Board of Directors or other governing body of our company (together with any new directors whose election to such Board of Directors or whose nomination for election by our stockholders was approved by a vote of 66 ²/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved), ceasing for any reason to constitute a majority of such Board of Directors then in office or (H) any other transaction in lieu of, or which would impede or prevent, the transactions contemplated by the Principal Financing documents (any of the foregoing, a “Competing Transaction”), or (ii) conduct any discussions or negotiations, or provide any information to (or any review information of) any other party, or enter into any agreement, arrangement or understanding, regarding, or in connection with, a Competing Transaction; provided, however, that nothing herein shall prevent our company from taking a position pursuant to certain rules promulgated under the Securities Exchange Act of 1934 (as amended) with regard to any unsolicited tender offer.

Only one Proxy StatementIrrespective of whether the Principal Financing is consummated or the Amended Securities Purchase Agreement is terminated, we have agreed to pay all out-of-pocket costs, fees and setexpenses (including the fees and expenses of accompanying materials is being deliveredSchulte Roth & Zabel LLP, counsel for SAC and its affiliates) (“Expenses”) incurred by, or on behalf of, SAC in connection with the financing transaction, including, but not limited to, in connection with (i) any accounting, business, environmental, legal, or regulatory due diligence review of our company and our business and (ii) the revision, negotiation, execution and delivery of all Principal Financing documents and the Bridge Facility and any related documents, up to a maximum reimbursement of $750,000 (the “Fee Cap”). However, the Fee Cap will be increased if SAC determines that such amount does not reasonably reflect the actual or reasonably anticipated Expenses and our Board of Directors approves such increase (such approval not to be unreasonably withheld or delayed). Nevertheless, we will not be obligated to pay more than $400,000 in Expenses if we terminate the Amended Securities Purchase Agreement pursuant to a material breach by the CompanyInvestors having a right to multipleacquire a majority of the Convertible Notes.

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Nasdaq National Market Stockholder Approval Requirements and Vote Required

In most instances in which our Board of Directors authorizes the issuance of shares of Class A Common Stock or securities convertible or exercisable into shares of our Class A Common Stock, we are not required to seek the approval of our stockholders. However, due to the significant dilution that could result from the issuance of our Class A Common Stock pursuant to the terms of the Convertible Notes and the Warrants, we are required by our principal trading market, the Nasdaq National Market, to solicit stockholder approval. In particular, NASD Rule 4350 requires stockholder approval in the event of(i) the sale, issuance or potential issuance by the issuer of common stock (or securities convertible into or exercisable for common stock) at a price less than the greater of book or market value which, together with sales by officers, directors or substantial stockholders sharingof the issuer, equals 20% or more of the common stock or 20% or more of the voting power outstanding before the issuanceand (ii) any transaction that may be deemed to be a change of control of the issuer.

Therefore, we need to obtain stockholder approval because the conversion or exercise, as applicable, of all of the Convertible Notes and the Warrants, in accordance with their respective terms, would result in the issuance of more than 20% of our Class A Common Stockand the effect of such issuance of our Class A Common Stock could be deemed for purposes of applicable NASD rules to be a change of control of our company.

The affirmative vote of the holders of a majority of the issued and outstanding shares of our voting stock present in person or represented by proxy and entitled to vote at the Special Meeting will be required to approve this proposal.

Board Recommendation

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THIS PROPOSAL.

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PROPOSAL 2

CHARTER AMENDMENT TO INCREASE

THE NUMBER OF AUTHORIZED SHARES

OF OUR CLASS A COMMON STOCK

Purpose of the Share Increase Amendment

After taking into consideration our current outstanding equity obligations, together with our obligations under the Amended Securities Purchase Agreement described in this proxy statement, our Board of Directors determined that it is necessary to amend our Restated Certificate of Incorporation, as amended (our “Restated Certificate of Incorporation”), to increase the number of shares of our Class A Common Stock authorized for issuance. Currently, we do not have a sufficient number of shares of our Class A Common Stock authorized to meet the maximum number of shares we would be required to issue if the holders of all of the Convertible Notes and the Warrants sought to convert and exercise those instruments. Also, if you approve The Wet Seal, Inc. 2004 Stock Incentive Plan, we must reserve 10,000,000 shares of Class A Common Stock for issuance under the terms of that Plan.

Our Restated Certificate of Incorporation currently permits us to issue up to 72,000,000 shares of capital stock, of which 2,000,000 shares are designated as preferred stock, having a par value of $0.01 per share, 60,000,000 shares are designated as Class A Common Stock, having a par value of $0.10 per share, and 10,000,000 shares are designated as Class B Common Stock, having a par value of $0.10 per share.

At the Special Meeting, we will ask our stockholders to approve an address unlessamendment to our Restated Certificate of Incorporation to increase the Company receives contrary instructionsnumber of authorized shares of Class A Common Stock from 60,000,000 to 150,000,000. In order to effect this change, the total number of shares of common stock authorized in our Restated Certificate of Incorporation would be increased from 70,000,000 to 160,000,000 and the total number of capital stock authorized in our Restated Certificate of Incorporation would be increased from 72,000,000 to 162,000,000.

In addition to our obligations under the securities to be issued to the Investors, we may require that additional shares of our capital stock be available for acquisitions and other corporate purposes, such as stock splits, recapitalizations and in connection with the anti-dilution protection afforded to the holders of the Convertible Notes and the Warrants. As a result, our Board of Directors has deemed it advisable to seek approval of additional shares of capital stock for these purposes. While there are no acquisitions pending which would involve the issuance of such additional shares, we from time to time consider potential acquisitions, some or all of which may involve the issuance of shares of our capital stock.

The text of the proposed amendment to the Restated Certificate of Incorporation is attached to this proxy statement as Exhibit A.

If our stockholders do not approve the amendment to our Restated Certificate of Incorporation, we will be unable to consummate the financing transactions with the Investors which would significantly impact our ability to survive as a going concern.

Effect of the Increase in the Authorized Number of Shares of Class A Common Stock

Until issued, the increase in the number of authorized shares of Class A Common Stock will not have any immediate effect on your rights as an existing stockholder. Moreover, pursuant to the terms of the Convertible Notes and the Warrants each holder is prohibited from converting or exercising any such securities if as a result such holder (together with its affiliates) would beneficially own (as that term is defined in Rule 13d-3 of the Securities Exchange Act of 1934 (as amended) more than 9.99% of our outstanding Class A Common Stock.

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NEVERTHELESS, YOU SHOULD BE AWARE THAT IF (I) ALL OF THE CONVERTIBLE NOTES ARE CONVERTED, (II) THE WARRANTS ARE EXERCISED IN FULL AND (III) ALL 10,000,000 SHARES OF OUR CLASS A COMMON STOCK ARE ISSUED UNDER OUR NEW PLAN, THE CURRENT STOCKHOLDERS’ PERCENTAGE OWNERSHIP OF OUR CLASS A COMMON STOCK, ON A FULLY DILUTED BASIS, WILL BE REDUCED FROM 76.4% TO 32.9%.Please refer to our discussion in Proposal 1 under the heading “Class A Common Stock Ownership Limitation and Your Dilution” for analysis of your potential dilution.

Although the number of shares of Class A Common Stock potentially issuable under the terms of the Principal Financing is significant, our Board of Directors has determined, in consultation with its advisors, that the financing alternative presented by the Investors represents the best alternative for our company in light of our financial condition.

Vote Required

Under Delaware law, in order to approve this proposal, we will need (i) the affirmative vote of the holders of a majority of the votes of our outstanding Class A Common Stock and Class B Common Stock entitled to vote at the Special Meeting, voting together as a single class, and (ii) due to our intention to increase the number of authorized shares of Class A Common Stock, the affirmative vote of the holders of a majority of our outstanding shares of Class A Common Stock entitled to vote at the Special Meeting, voting together as a separate class.

Board Recommendation

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THIS PROPOSAL.

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PROPOSAL 3

APPROVAL OF THE WET SEAL, INC. 2005 STOCK INCENTIVE PLAN

Overview

At our Board of Directors meeting convened to approve our transactions with the Investors, the Board of Directors adopted the Plan, subject to our stockholder approval at the Special Meeting. The Plan was adopted in order to assist our company in attracting management with turn-around and merchandising expertise. In addition, the Plan will be used to grant awards to our officers, employees, directors and consultants in order to provide such individuals with (i) additional incentive to work to increase the value of our Class A Common Stock and (ii) a stake in the future of our company. We are asking you to approve the adoption of the Plan and the reservation of a total of 10,000,000 shares of our Class A Common Stock for issuance thereunder.

The Plan provides for the award of options, whether nonqualified or incentive, stock appreciation rights, restricted common stock, restricted common stock units, performance shares, performance share units and cash bonuses.

In order to qualify for deductibility under Section 162(m) of the Code, the Plan, including, without limitation, the performance goals for determining performance awards set forth in the Plan, must be approved by our stockholders. In addition, we are seeking your approval of the Plan pursuant to NASD Rule 4350(A) which requires our company to obtain stockholder approval when a stock option plan is established.

A general description of the principal terms of the Plan is set forth below. However, this summary does not purport to be a complete description of all of the provisions of the Plan, as proposed to be adopted, which is attached to this proxy statement as Exhibit B.

Number of Shares

Subject to adjustment for certain corporate events, the total of the number of shares of Class A Common Stock which shall be available for the grant of awards (including incentive stock options) under the Plan shall not exceed 10,000,000 shares of Class A Common Stock; provided, that, for purposes of this limitation, any Class A Common Stock subject to an option which is canceled or expires without exercise shall again become available for award under the Plan. Upon forfeiture of awards in accordance with the provisions of the Plan and the terms and conditions of the award, such shares shall again be available for subsequent awards under the Plan. Subject to adjustment in accordance with the Plan, no employee shall be granted, during any one (1) year period, options, or any other awards eligible for grant under the Plan, to purchase more than 10,000,000 shares of our Class A Common Stock. Shares of Class A Common Stock available for issue or distribution under the Plan shall be authorized and unissued shares, treasury shares or shares reacquired by us in any manner.

Administration

The Compensation Committee (the “Committee”) of our Board of Directors will administer the Plan. The Committee is currently comprised of Henry Winterstern, Howard Gross and Walter Loeb, as Chairman, each of whom are non-employee directors within the meaning of Rule 16b-3 as promulgated under Section 16 of the Securities Exchange Act of 1934, as amended, and are also outside directors within the meaning of Section 162(m) of the Code. The Committee will (i) approve the selection of participants, (ii) determine the type of awards to be made to participants, (iii) determine the number of shares of Class A Common Stock subject to awards, (iv) determine the terms and conditions of any awards granted thereunder (including, but not limited to, any restriction and forfeiture conditions on such awards) and (v) have the authority to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any agreements entered into thereunder, and to make all other determinations necessary or advisable for the

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administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any award in the manner and to the extent it shall deem desirable to carry it into effect.

Eligibility

Employees, officers, directors and consultants of our company and our subsidiaries selected by the Committee are eligible to receive grants of awards under the Plan. Only employees of our company and our subsidiaries may be granted incentive stock options.

Awards

Awards under the Plan may consist of options, stock appreciation rights, restricted common stock, restricted common stock units, performance shares, performance share units or cash bonuses.

Options

Both nonqualified stock options (“Nonqualified Stock Options”) and “incentive stock options” (“ISOs”) may be granted under the Plan, collectively referred to as the Options. The terms of any such Option shall be set forth in an Option agreement and shall be consistent with the following:

Exercise Price

The exercise price per share of our Class A Common Stock to be purchased pursuant to any Option shall be fixed by the Committee at the time such Option is granted and shall not be less than the fair market value of a share of Class A Common Stock on the date the Option is granted; provided, however, in the case of ISOs granted to an employee owning stock possessing more than 10% of the total combined voting power of all classes of shares of our company and its subsidiaries, the price per share specified in an Option agreement shall not be less than 110% of the fair market value per share of Class A Common Stock on the date of grant.

Option Term

The term of each Option will be determined by the Committee, but may not exceed ten (10) years from the date of grant; provided, however, that in the case of ISOs granted to 10% stockholders, the term of such Option shall not exceed five (5) years from the date of grant.

Vesting

An Option shall vest and become exercisable at a rate determined by the Committee on the date of grant, with a minimum vesting period of one (1) year.

Method of Exercise

Options may be exercised, in whole or in part, by giving written notice of exercise to our company in a form approved by us specifying the number of shares of Class A Common Stock to be purchased. Such notice shall be accompanied by the payment in full of the exercise price. The exercise price of the Option may be paid by (i) cash or certified or bank check, (ii) surrender of Class A Common Stock held by the optionee for at least six (6) months prior to exercise (or such longer or shorter period as may be required to avoid a charge to earnings for financial accounting purposes) or the attestation of ownership of such shares, in either case, if so permitted by us, (iii) if established by us, through a “same day sale” commitment from the optionee and a broker-dealer selected by us that is a member of the National Association of Securities Dealers, or an NASD Dealer, whereby the optionee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased sufficient to

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pay for the total exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the total exercise price directly to us, (iv) through additional methods prescribed by the Committee or (v) by any combination of the foregoing, and, in all instances, to the extent permitted by applicable law. Options may not be exercised for fractional shares of our Class A Common Stock. A participant’s subsequent transfer or disposition of any Class A Common Stock acquired upon exercise of an Option shall be subject to any federal and state laws then applicable, specifically securities law, and the terms and conditions of the Plan.

Prohibition on Repricing

No Option granted under the Plan shall be amended to reduce the exercise price under such Option, or surrendered in exchange for a replacement Option having a lower purchase price per share; provided, that, this prohibition shall not restrict or prohibit any adjustment permitted under the Plan in connection with certain corporate events or changes in the Class A Common Stock.

Stock Appreciation Rights “SARs”

The Plan permits the Committee to award from time to time SARs to an eligible participant either at the time of the grant of an Option or thereafter by amendment to the option. A SAR is the right to receive the increase between the grant price and the market price of our Class A Common Stock on the date of settlement in Class A Common Stock or cash.

Restricted Common Stock

The Plan permits the Committee to award restricted Class A Common Stock under the Plan to eligible participants. The Committee may also award restricted Class A Common Stock in the form of restricted common stock units having a value equal to an identical number of shares of Class A Common Stock. Payment of restricted common stock units shall be made in Class A Common Stock or in cash or in a combination thereof (based upon the fair market value of the Class A Common Stock on the day the restricted period expires), all as determined by the Committee in its discretion. Restricted Class A Common Stock awards shall vest at a rate determined by the Committee on the date of grant, with a minimum vesting period of one (1) year.

Performance Awards

Under the Plan, the Committee has the authority to grant Performance Awards (as defined below) which provide participants with the right to an award based upon the achievement of one or more levels of performance required to be attained with respect to a Performance Goal (as defined below) set by the Committee during a Performance Period (as defined below) or the Performance Objective (as defined in the Plan). Performance shares may be granted in the form of actual shares of Class A Common Stock or common stock units having a value equal to an identical number of shares of Class A Common Stock. In addition, the Committee may make cash bonuses to participants based on the Performance Objectives established by the Committee (performance shares and performance cash bonuses collectively referred to as “Performance Awards”). The Plan contemplates that the following Performance Goals may be selected by the Committee and shall mean or may be expressed in terms of one or more of the stockholders. The Company will deliver, promptly upon writtenfollowing business criteria: revenue, earnings before interest, taxes, depreciation and amortization or oral request,EBITDA, funds from operations, funds from operations per share, operating income, pre or after tax income, cash available for distribution, cash available for distribution per share, net earnings, earnings per share, return on equity, return on assets, share price performance, improvements in our company’s attainment of expense levels, and implementing or completion of critical projects, or improvement in cash-flow (before or after tax) (each, a separate copy“Performance Goal”). A Performance Goal may be measured over a Performance Period on a periodic, annual, cumulative or average basis and may be established on a corporate-wide basis or established with respect to one or more operating units, divisions, subsidiaries, acquired businesses, minority investments, partnerships or joint ventures. For purposes of the ProxyPlan, a “Performance Period” shall mean the calendar year, or such other shorter or longer period designated by the Committee, during which performance will be measured in order to determine a participant’s entitlement to receive payment of a Performance Award.

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StatementThe Committee shall establish the Performance Objective for each Performance Award, consisting of one or more business criteria permitted as Performance Goals under the Plan, one or more levels of performance with respect to each such criterion, and accompanying materialsthe amount or amounts payable or other rights that the participant will be entitled to stockholders atupon achievement of such levels of performance. The Performance Objective shall be established by the Committee prior to or reasonably promptly following the inception of a shared addressPerformance Period but, to which a single copy was delivered. A stockholder who wishes to receive a separate copythe extent required by Section 162(m) of the Proxy Statement and accompanying materials nowCode, by no later than ninety (90) days after the commencement of the Performance Period or the day prior to the date on which 25% of the Performance Period has elapsed.

Subject to adjustment for certain corporate events, the maximum number of Performance Shares subject to any award to any individual who is a covered employee for purposes of Section 162(m) of the Code (“Covered Employee”) is 10,000,000 for each twelve (12) months during the Performance Period (or, to the extent the award is paid in cash, the maximum dollar amount of any such award is the equivalent cash value, based on the fair market value of the common stock, of such number of shares of Class A Common Stock on the last day of the performance period). If the Performance Award is a cash bonus, a participant shall not be granted performance cash bonuses for all of the Performance Periods commencing in a calendar year that permit the participant, in the future, or stockholders sharing an address who are receiving multiple copiesaggregate, to earn a cash payment in excess of proxy materials and wish to receive a single copy of such materials, should submit a request to Investor Relations at (949) 699-4804, helen.rotherham@wetseal.com or Investor Relations, The Wet Seal, Inc., 26972 Burbank, Foothill Ranch, California 92610.$3,000,000 per calendar year.

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No payments will be made with respect to any Performance Award unless and until the Committee certifies the achievement of the Performance Goals.

PROPOSAL #1Change of Control

ELECTION OF DIRECTORSUnless otherwise provided in an award agreement, upon the occurrence of a Change of Control (as defined in the Plan) in which awards are not terminated in accordance with the Plan, all Options, restricted stock and SARs granted prior to such Change of Control shall automatically become vested and exercisable in full and all restrictions or performance conditions, if any, on any other awards shall automatically lapse.

NomineesAdjustments

The Company’s Bylaws givePlan provides that in the Boardevent of certain corporate events or changes in the power to setClass A Common Stock, awards and the number of directors at no less than three nor more than fifteen. The sizeshares under the Plan may be adjusted to reflect such event. Any such adjustment made to an ISO shall be made in accordance with Section 424(a) of the Company’s Board is currently set at seven. The seven nominees are currently directors ofCode unless otherwise determined by the Company. The directors so elected will serve until the next Annual Meeting of Stockholders. The Board knows of no reason why any nominee for director would be unable to serve as a director. Committee.

Forfeiture

In the event of a serious breach of conduct by a participant or former participant (including, without limitation, any conduct prejudicial to or in conflict with our company or any subsidiary), the Committee may (i) cancel any outstanding award granted to such participant or former participant, in whole or in part, whether or not vested, and/or (ii) if such conduct or activity occurs within one (1) year following the exercise or payment of an award, require such participant or former participant to repay our company any gain realized or payment received upon the exercise or payment of such award (with such gain or payment valued as of the date of exercise or payment).

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Amendment and Termination

Our Board of Directors may terminate or amend the Plan in any respect at any time, except that, no amendment will be made without stockholder approval, if such approval is necessary to comply with any applicable law, regulation or stock exchange rule and, except as otherwise provided in the Plan with respect to adjustments in connection with certain corporate events or changes in our Class A Common Stock, no amendment will be made that would adversely affect the rights of a participant without such participant’s written consent.

General Federal Tax Consequences

The following is a summary of the material federal tax consequences of receiving Options under the Plan and is based upon an analysis of the present provisions of the Code and the regulations promulgated thereunder, all of which are subject to change. A participant may also be subject to state and local taxes, the consequences of which are not discussed herein, in the jurisdiction in which he or she works and/or resides. This summary is for general information and is not tax advice.

Section 162(m) Limitation

Subject to a limited number of exceptions, Section 162(m) of the Code denies a deduction to a publicly held corporation for payments of remuneration to certain employees to the extent the employee’s remuneration for the taxable year exceeds $1,000,000. For this purpose, remuneration attributable to Options is included within the $1,000,000 limitation. However, to the extent that certain procedural requirements are met (e.g., the Plan is approved by our stockholders, grants are made by the Committee, the exercise price is equal to the fair market value of the underlying shares upon grant, etc.), gain from the exercise of Options should not be subject to the $1,000,000 limitation. We have attempted to structure the Plan in such a manner that the remuneration attributable to the Options will not be subject to the $1,000,000 limitation. We have not, however, requested a ruling from the Internal Revenue Service or an opinion of counsel regarding this issue.

Nonqualified Stock Options

An individual receiving Nonqualified Stock Options should not recognize taxable income at the time of grant. A participant should generally recognize ordinary compensation income in an amount equal to the excess, if any, in the fair market value of the Option shares on exercise of the Nonqualified Stock Options over the exercise price thereof. In general, subject to the limitations set forth in Section 162(m) and discussed above, our company is entitled to deduct from its taxable income the amount that the participant is required to include in ordinary income at the time of such inclusion.

Incentive Stock Options

An individual granted an ISO will not generally recognize taxable income at the time of grant or, subject to certain conditions, at the time of exercise, although he or she may be subject to alternative minimum tax. In general, if a disqualifying disposition should occur (i.e., the shares acquired upon exercise of the Option are disposed of within the later of two years from the date of grant or one year from the date of exercise), a participant will generally recognize ordinary compensation income in the year of disposition in an amount equal to the excess, if any, of them should become unavailable priorthe fair market value of the Option shares at the time of exercise (or, if less, the amount realized on disposition), over the exercise price thereof. Our company is not entitled to any deduction on account of the grant of the ISOs or the participant’s exercise of the option to acquire common stock. However, in the event of a subsequent disqualifying disposition of such shares of Class A Common Stock acquired pursuant to the Annualexercise of an ISO under circumstances resulting in taxable compensation to the participant, subject to the limitations set forth in Section 162(m) and discussed above, in general, our company should be entitled to a tax deduction equal to the amount treated as taxable compensation to the participant.

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Section 280G of the Code

Under certain circumstances, the accelerated vesting or exercise of Options or the accelerated lapse of restrictions with respect to other awards in connection with a Change of Control (as defined in the Plan) might be deemed an “excess parachute payment” for purposes of the golden parachute tax provisions of Section 280G of the Code. To the extent it is so considered, the grantee may be subject to a 20% excise tax and our company may be denied a federal income tax deduction.

Registration with the SEC

If this Proposal is adopted, our company intends to file a registration statement covering the offering of the shares of Class A Common Stock under the Plan with the SEC pursuant to the Securities Act of 1933, as amended.

New Plan Benefits

The amounts payable under the Plan for 2004 which may be received by each of (a) our executive officers named in the Summary Compensation Table below, (b) our executive officers as a group and (c) our employees who are not executive officers as a group, are not currently determinable.

Vote Required

The affirmative vote of the holders of a majority of the issued and outstanding shares of our voting stock present in person or represented by proxy and entitled to vote at the Special Meeting the proxies will be voted for a substitute nominee or nominees designated by the required to approve this proposal.

Board or the number of directors may be reduced accordingly.Recommendation

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THIS PROPOSAL.

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VOTING SECURITIES AND PRINCIPAL HOLDERS

The following table sets forth information regarding the nomineesbeneficial ownership of our company’s Class A Common Stock as of December 9, 2004 for director:(i) each person known to us to have beneficial ownership of more than 5% of class of our capital stock; (ii) each of our directors; (iii) each of the Named Executive Officers (as defined below); and (iv) all directors and executive officers of our company as a group. As of December 9, 2004, there were 34,660,657 and 1,500,000 shares of Class A Common Stock and Class B Common Stock, respectively, issued and outstanding.

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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE ELECTION OF EACH OF THE ABOVE NOMINEES.

428

EXECUTIVE OFFICERS

The executive officers of the Company who are not also directors are set forth below:

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Corporate Governance

The primary responsibility of the Board of Directors is to foster the long-term success of the Company, consistent with representing the interests of the Company’s stockholders. In accordance with this philosophy, the Board of Directors has taken the following steps, among others, to reinforce the Company’s values by promoting responsible business practices and good corporate citizenship:

Meetings and Committees of the Board of Directors

The Board of Directors met or took action by written consent twelve times in the fiscal year ended January 31, 2004. Each of the directors attended at least 75% of the Board of Directors meetings and their respective committee meetings.

The Company has an Audit Committee consisting of Wilfred Posluns (Chairman), George H. Benter, Jr., Barry J. Entous and Walter F. Loeb, each of whom the Board has affirmatively determined is independent in accordance with Nasdaq National Market listing standards and the applicable rules and regulations promulgated

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under the Securities Exchange Act of 1934, as amended. The Audit Committee is responsible for reviewing, as it shall deem appropriate, and recommending to the Board of Directors internal accounting and finance controls for the Company and accounting principles and auditing practices and procedures to be employed in the preparation and review of the Company’s financial statements. The Audit Committee is also responsible for recommending to the Board of Directors independent public accountants to audit the annual financial statements of the Company and the scope of the audit to be undertaken by the accountants. Mr. Entous is a practicing certified public accountant and as such, and for other reasons, is considered to be an “audit committee financial expert” under recently adopted regulations of the Securities and Exchange Commission. The Charter of the Audit Committee, which was amended on May 28, 2003, is set forth on Exhibit A attached hereto and is available on the Company’s website at http://www.wetsealinc.com.

In accordance with Nasdaq National Market listing standards, each director nominee is selected or recommended for the Board’s selection by a majority of the independent directors of the Board. A majority of the independent directors of the Board will consider proposed nominees whose names are submitted to them by stockholders; however, there is no formal process for such consideration. The Board of Directors has not adopted a formal consideration process because it believes that its informal consideration process has been adequate, given the historically small number of stockholder recommendations. The Board of Directors intends to review periodically whether a more formal policy should be adopted.

Any stockholder who desires to recommend a nominee must submit a letter, addressed to the Secretary of the Company at 26972 Burbank, Foothill Ranch, California 92610, and which is clearly identified as a “Director Nominee Recommendation.” All recommendation letters must identify the author as a stockholder and provide a brief summary of the candidate’s qualifications, as well as contact information for both the candidate and the stockholder. Any stockholder recommendations for the next Annual Meeting must be submitted by December 21, 2004 to assure time for meaningful consideration and evaluation of the nominees by the independent members of the Board of Directors.

The Company has a Compensation/Option Committee consisting of Walter F. Loeb (Chairman), George H. Benter, Jr. and Wilfred Posluns, each of whom the Board has affirmatively determined is independent in accordance with Nasdaq National Market listing standards. The Compensation/Option Committee is responsible for establishing general compensation policies and specific compensation levels for the Company’s executive officers and is responsible for granting stock options to executive officers and other key employees. See “Report of the Compensation/Option Committee on Executive Compensation.” The Charter of the Compensation/Option Committee, which was approved by the Board on November 18, 2003, is set forth on Exhibit B attached hereto.

During the fiscal year ended January 31, 2004, the Compensation/Option Committee met or took action by written consent five times and the Audit Committee met or took action by written consent five times.

Stockholder Communications

Although the Company has not to date developed formal processes by which stockholders may communicate directly to Directors, it believes that the informal process, in which any communication sent to the Board in care of the Secretary of the Company is forwarded to the Board, has served the Board’s and its stockholders’ needs. There is no screening process, other than to confirm that the sender is a stockholder, and all stockholder communications which are received by the Secretary of the Company for the Board’s attention are forwarded to the Board with a copy to the chairman of the Audit Committee. In view of recently adopted Securities and Exchange Commission disclosure requirements relating to this issue, the Board may consider development of more specific procedures. Until any other procedures are developed, any communications to the Board should be sent to it in care of the Secretary of the Company.

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Report of the Audit Committee of the Board of Directors

The Audit Committee serves as the representative of the Board of Directors for general oversight of the Company’s financial accounting and reporting, systems of internal control and audit process, and monitoring compliance with laws and regulations and standards of business conduct. The Audit Committee is composed of four directors, each of whom the Board has affirmatively determined is independent in accordance with Nasdaq National Market listing standards and the applicable rules and regulations promulgated under the Securities Exchange Act of 1934, as amended. The Charter of the Audit Committee, which was amended on May 28, 2003, is set forth on Exhibit A attached hereto. Management of the Company has primary responsibility for preparing financial statements of the Company as well as the Company’s financial reporting process. Deloitte & Touche LLP, acting as independent auditors, is responsible for expressing an opinion on the conformity of the Company’s audited financial statements with generally accepted accounting principles.

In this context, the Audit Committee hereby reports as follows:

Audit Committee:

Wilfred Posluns (Chairman)

George H. Benter, Jr.

Barry J. Entous

Walter F. Loeb

The foregoing Report of the Audit Committee shall not be deemed to be incorporated by reference in any previous or future documents filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates the Report by reference in any such document.

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Fees Paid to the Independent Auditors

The following table presents fees for professional audit services rendered by Deloitte & Touche LLP for the audit of the Company’s annual financial statements for fiscal years 2003 and 2002, and fees billed for other services rendered by Deloitte & Touche LLP during those periods:

All of the services for which fees are listed above were pre-approved by the Audit Committee.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

Consistent with the policies of the Securities and Exchange Commission regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent auditors. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor.

Prior to engagement of the independent auditors for the next year’s audit, management will submit an aggregate of services expected to be rendered during that year for each of four categories of services to the Audit Committee for approval.

1.    Audit services are services rendered by the independent auditor for the audit of financial statements and review of financial statements included in the Company’s Form 10-Q or services that are normally provided by the independent auditor in connection with statutory and regulatory filings or engagements.

2.    Audit-related services are for assurance and related services performed by the independent auditor that are reasonably related to the performance of the audit or review of the financial statements, including the audit of the annual financial statements for the Company’s Retirement Savings Plan and the review and actuarial calculation for the Company’s Supplemental Employee Retirement Plan.

3.    Tax services include all services performed by the independent auditor for tax compliance, tax planning, and tax advice, including professional services rendered for preparation and review of the federal and state corporate income tax returns, preparation of the Puerto Rico corporate income tax return and miscellaneous tax advice and tax planning related to federal and state income tax issues.

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4.    Other fees are those associated with services not captured in the other categories. The Company generally does not request such services from the independent auditors.

Prior to engagement, the Audit Committee pre-approves these services by category of service. The fees are budgeted and the Audit Committee requires the independent auditors and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent auditors for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent auditors.

The Audit Committee may delegate pre-approval authority to one or more of its members and, to a very limited extent, to members of management. The person to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.

For services of the independent auditors to be rendered during fiscal year 2004, the Audit Committee has previously received estimates of fees to be charged by the independent auditors and has pre-approved such fees in accordance with the foregoing procedures.

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EXECUTIVE COMPENSATION AND OTHER INFORMATION

Executive Compensation

The following table sets forth the compensation (cash and non cash), for fiscal years 2003, 2002 and 2001, for (i) each person who served as Chief Executive Officer, during fiscal year 2003, including an interim Chief Executive Officer and a former Chief Executive Officer, (ii) the four other most highly compensated executive officers serving as executive officers at the end of the lastour 2003 fiscal year and (iii) two former officers who would have been among the four most highly compensated executive officers but for the fact that such individuals were not serving as executive officers as of the end of the lastour 2003 fiscal year (collectively, with (i) and (ii), the “named“Named Executive Officers”). In addition, see “Employment Agreements with Executives” for a description of the compensation of our current executive officers”).officers.

SUMMARY COMPENSATION TABLE

1129

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Option Grants in Fiscal Year 2003

The following table sets forth information regarding options granted in fiscal year 2003 to each of the named executive officers.officers reflected in the Summary Compensation Table above for fiscal year 2003. All such options were granted pursuant to the Company’sour 1996 Long-Term Incentive Plan and 2000 Long-Term Incentive Plan.

OPTION GRANTS IN THE LAST FISCAL YEAR 2003

1331

Option ExerciseExercises in Fiscal Year 2003 and Fiscal Year-End Option Values

The following table sets forth information regarding the exercise of options by each of the named executive officers during fiscal year 2003. The table also shows the number and value of unexercised options held by each of the named executive officers as of January 31, 2004. The value of unexercised options is based on a fair market value of $8.75 per share as of January 31, 2004.

AGGREGATED OPTION/SAROPTION EXERCISES IN THE LAST FISCAL YEAR

2003 AND OPTION/SARFISCAL YEAR-END OPTION VALUES AT JANUARY 31, 2004

Retirement Plan

Irving Teitelbaum was a participant in The Wet Seal, Inc. Supplemental Executive Retirement Plan (“SERP”), an unfunded, nonqualified retirement plan as of January 31, 2004. During the fiscal year ended January 31, 2004, Kathy Bronstein, the former chief executive officer of the Company,our company, terminated participation in the SERP resulting in a curtailment/settlement of the benefit obligation of $1,347,000. According to the terms of the SERP, a participant’s “Annual Accrued Benefit” shall be $250,000 which may be increased upward, if applicable, based on the “Pre-Tax Profit Percentage” (as defined in the SERP) for the three full fiscal years of the Companyour company preceding the date the participant’s service with the Companyour company is terminated, as follows:

A participant is entitled to receive benefits under the SERP upon his or her Normal Retirement Date (the first day of the month following the date the participant’s service with the Companyour company as an officer or executive has terminated, and which occurs at or after the date the participant has attained 22.5 years of service with the Company)our company). A participant may receive an early retirement benefit equal to his or her Annual Accrued Benefit reduced by ½ of 1% per month for the number of months his or her retirement precedes his or her Normal

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Retirement Date. The normal form of benefit is a straight life annuity, ending in the month in which the participant dies. The Annual Accrued Benefit is payable in 12 equal monthly installments a year. The participant may choose to receive the benefit in the form of a 50% joint and survivor annuity. Benefits under the SERP are forfeitable upon a termination of employment for Cause“Cause” (as defined in the SERP). Benefits under the SERP are provided by the Companyour company on a noncontributory basis.

14Employment Agreements with Executives

Peter D. Whitford

Peter D. Whitford served as the Chief Executive Officer of our company from June 30, 2003 through November 4, 2004. During his employment, Mr. Whitford was entitled to receive an annual base salary of $750,000, adjustable annually, and was eligible to receive a performance bonus. At the time his employment with our company terminated his annual salary was $775,000.

On November 4, 2004, the Company and Mr. Whitford entered into an Agreement and General Release (the “Agreement”) to terminate Mr. Whitford’s employment with the Company. Pursuant to the Agreement, Mr. Whitford resigned from his positions as our Chief Executive Officer, Director and Chairman of our Board of Directors, effective as of November 4, 2004.

In addition, the Agreement provides that Mr. Whitford will receive certain payments and grants of options from the Company, including: (i) bi-weekly payments of $29,807 to be paid from November 5, 2004 until the earlier of (x) January 31, 2005 and (y) the closing of the Principal Financing (the “Payment Date”), (ii) 300,000 options at an exercise price of $1.75 per share and 200,000 options at an exercise price of $2.00 per share, exercisable until June 1, 2006, issued on December 8, 2004, (iii) a payment of $1,585,000 (less the total amount of bi-weekly payments) to paid on the Payment Date, representing two years of compensation, (iv) a payment of $509,400 to paid on the Payment Date, representing the cost of three annual contributions to Mr. Whitford’s supplemental executive retirement plan, (v) a payment of an amount equal to the cost of Mr. Whitford’s continued healthcare coverage for eighteen months following November 4, 2004, to be paid on or before the Payment Date, and (vi) $50,000 representing the cost of providing outplacement services to be paid on the Payment Date. Furthermore, each of the Company and Mr. Whitford released the other party from any claims it had against such other party up to November 4, 2004.

Joseph Deckop

On October 28, 2004, we entered into a retention agreement with Joseph Deckop, our then Executive Vice President and our current interim Chief Executive Officer. Under the retention agreement, Mr. Deckop received a one-time retention cash bonus of $100,000 on December 1, 2004, which is required to be returned to our company if Mr. Deckop were to voluntarily terminate his employment with our company within 12 months. In addition, Mr. Deckop received a grant of 155,000 shares of our restricted stock and certain severance protections in the event of an involuntary termination of employment by our company. We have not modified Mr. Deckop’s retention agreement in connection with his appointment as interim Chief Executive Officer of our company.

Douglas C. Felderman

On October 28, 2004, we entered into a retention agreement with Douglas C. Felderman, our Executive Vice President and Chief Financial Officer. Under the retention agreement, Mr. Felderman will received a one-time retention cash bonus of $100,000, which is required to be returned to our company if Mr. Felderman were to voluntarily terminate his employment with our company within 12 months. In addition, Mr. Felderman received a grant of 155,000 shares of our restricted stock and certain severance protections in the event of an involuntary termination of employment by our company.

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Jennifer Pritchard

On September 27, 2004, we entered into a retention agreement with Jennifer Pritchard, President of our Arden B division. Ms. Pritchard’s base salary was increased by $25,000 to an annual rate of $410,000, her bonus opportunity was increased from 50% of her salary to 75% of her salary and her previous maximum bonus was increased from 100% to 150% of her salary. In addition, Ms. Pritchard was given a retention cash bonus of $200,000, which is required to be returned to our company if she were to leave voluntarily within 12 months. Ms. Pritchard has the right to exchange the retention cash bonus for an award of 200,000 shares of our Class A Common Stock. In addition, she received a grant of 200,000 shares of our restricted Class A Common Stock and certain severance protections in the event of an involuntary termination of employment by our company.

Director Compensation

All directors, other than Mr. Teitelbaum and Mr. Stephen Gross, receive a fee of $8,000 for each board meeting attended, with a minimum yearly fee of $32,000. A fee of $600 is paid for each board conference call. In addition, each director, other than Mr. Teitelbaum and Mr. Stephen Gross, received 10,000 stock options on March 13, 2003 and 15,000 stock options on June 17, 2003. These options vest in three equal installments on the first, second and third anniversaries of the date of grant. The awarding of stock options by the Companyour company to directors, in their capacity as such, is at the discretion of the Compensation/OptionCompensation Committee. All directors are reimbursed for expenses connected with attendance at the meetings of the Board of Directors.

Each Audit Committee member receives a fee of $5,000 for each Audit Committee meeting attended. At the request of the Audit Committee, Mr. Siegel attended each Audit Committee meeting during fiscal year 2003 and received the same fee for each meeting attended.

Each Compensation/OptionCompensation Committee member receives a fee of $500 for each Compensation/OptionCompensation Committee meeting attended.

Employment AgreementsOn August 18, 2004, we formed a special committee of our Board of Directors to analyze various business alternatives in light of our financial condition. The Special Committee was composed of Henry Winterstern, Chairman, Howard Gross and Alan Siegel. Upon the recommendation of Pearl Meyer & Partners, a leading compensation consulting firm, Henry Winterstern received a fee of $35,000 per month for the first two months of service on the Special Committee, while Messrs. Gross and Siegel received $25,000 per month for the same period. Each member of the Special Committee received one-half of his respective monthly fee for the third month of service on the Special Committee. The Special Committee was disbanded upon execution of the Original Securities Purchase Agreement with the Original Investors.

The Board of Directors has also resolved that, at the closing date of our Principal Financing, Mr. Winterstern will be granted 250,000 shares of restricted Class A Common Stock upon the closing of the Principal Financing.

Peter D. WhitfordChanges in our Board Composition and Management

The Company entered into an employment agreement dated ascomposition of May 29, 2003 withour Board of Directors and executive management has changed since our last annual meeting. On August 3, 2004, Peter D. Whitford under which hewas appointed as a Director and Chairman of our Board of Directors. On this same date, Mr. Teitelbaum was replaced by Mr. Whitford as Chairman of our Board of Directors but remained as a Director of our company. On August 18, 2004, our company appointed Howard Gross as lead director and Mr. Winterstern and Anne K. Zehren as Directors of our Board. On the same day, George H. Benter and Barry J. Entous retired from our Board of Directors. As a result of the foregoing changes, the size of our Board of Directors has agreeddecreased from nine members to serveseven members. For additional information on the requirements regarding our Board of Directors in connection with the Principal Financing, see “Proposal 1—Conditions Precedent”.

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On November 4, 2004, Mr. Whitford resigned from his position as Chief Executive Officer and Chairman of the Company for an initial termour Board of three years ending on June 30, 2006, and for one additional two year term thereafter, subject to 90 days advance notice by either party of a decision not to renew the employment agreement. Under the employment agreement, Mr. Whitford is entitled to an initial base salary of $750,000, subject to annual adjustments made by the Board in accordance with compensation practices and guidelines of the Company, provided, however, that Mr. Whitford’s base salary will increase to $775,000 after one year of employment and $810,000 after two years of employment with the Company. Mr. Whitford is entitled to receive a performance bonus ranging from 50% to a maximum of 125% of his base compensation for a particular year, subject to the Company achieving certain annual earnings per share as established by the Company. Mr. Whitford received a sign-on bonus in the amount of the fair market value (not to exceed $200,000) of the compensatory stock options he forfeited as a result of his resignation from his immediately prior employer. The Company also provides Mr. Whitford with the use, and maintenance, of a car and four weeks paid vacation. Mr. Whitford’s employment agreement with the Company entitles him to benefits under a non-qualified supplemental executive retirement plan which is currently being established. Mr. Whitford did not receive any benefits under such plan for fiscal year 2003.

Directors. In connection with the employment agreement, the Company granted Mr. Whitford stock options to acquire 300,000 shares of the Company’s Class A Common Stock under the terms and conditions of the Company’s Amended and Restated 1996 Stock Option Plan. The options vest as to one third of the shares on the first anniversary of the date of grant and one third annually thereafter and are exercisable for ten years following the date of grant provided that Mr. Whitford remains employed by the Company. Mr. Whitford is also entitled to receive performance shares and additional options consistent with grants made to other senior executives.

If Mr. Whitford’s employment is terminated by the Company without “cause” or by Mr. Whitford for “good reason,” he is entitled to receive his base compensation for the remainder of the initial term or extension period (as applicable) of the agreement and a performance bonus for the fiscal year in which he is terminated on a prorated basis, provided that he would have been entitled to such a bonus had he remained employed until the payment date of such bonus. If Mr. Whitford’s employment is terminated by the Board for “cause,” the Board may elect to suspend him with or without pay. “Cause” means Mr. Whitford’s (i) continued failure to perform duties after a written demand for substantial performance is delivered; (ii) indictment, conviction, guilty ornolo contendere plea with respect to a felony or comparable crime; (iii) commission of any act of theft, embezzlement or misappropriation against the Company or any other act which would prevent him from performing his duties; (iv) misconduct, gross neglect or malfeasance in the performance of services; (v) material breach of the

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agreement or willful misconduct or unethical behavior; (vi) breach of any Company policy or standard of conduct; or (vii) breach of a representation made by him. “Good reason” means the Company’s material breach of any of its material obligations under the agreement.

Pursuant to the employment agreement, Mr. Whitford agreed that, during his employment and for 12 months after the date that his employment is terminated, he will not solicit to employ any of the employees of the Company who hold the position of vice president or above.

Former Officers

Kathy Bronstein servedresignation, our board appointed Joseph Deckop as theinterim Chief Executive Officer effective November 8, 2004. Also on November 8, 2004, our Board of Directors accepted the Company from March 1992 until she was relievedresignation of her dutiesMs. Zehren and appointed Mr. Winterstern as Chairman of our Board of Directors. In addition, on February 5, 2003. On December 30, 1988, in her former positionNovember 23, 2004, our company announced the resignation of Executive Vice President and General Merchandise Manager, Ms. Bronstein entered into an employment agreement with the Company. Under this agreement, as amended on April 4, 2002, Ms. Bronstein was entitled to a base salary of $800,000 per annum, adjusted annually, and was eligible to receive a performance bonus and an incentive bonus. Ms. Bronstein has agreed not to compete with the Company for a period of two (2) years after the termination of her employment.

Ms. Bronstein and the Company entered into a Settlement Agreement and General Release dated August 8, 2003, pursuant to which Ms. Bronstein agreed to release the Company from any and all potential claims which Ms. Bronstein may have against the Company in exchange for certain consideration.

In April 2002, the Company entered into an employment agreement with Greg Scott pursuant to which Mr. Scott servedAllan Haims as President of the Arden B. division of the Company. The term of the agreement was for three years commencing May 1, 2002. Under the agreement, among other things, Mr. Scott was entitled to a base salary of $450,000, subject to yearly increases at the discretion of the Board of not more than 5% per year. Mr. Scott agreed not to compete with the Company or solicit for employment any of the Company’s employees during the term of the agreement and for a period of one year thereafter. In January 2004, Mr. Scott resigned from his position with the Company.Wet Seal stores.

Business Relationships

In fiscal years 2003, 2002 and 2001, the Companyour company paid a fee of $639,500, $639,500,$575,000 and $500,000, respectively, to First Canada Management Consultants Limited, a company controlled by Mr. Teitelbaum, for the services of Mr. Teitelbaum, in his capacity as Chairman of the Board of the Company,our company, and Stephen Gross, Corporate Secretary of the Company,our company, respectively. These services arewere provided pursuant to a Management Agreement, dated December 1, 1999, and amended on June 28, 2001, between First Canada Management Consultants Limited and our company. The agreement was terminated in May 2004.

Mr. Alan Siegel has been a director of our company since 1990. Mr. Siegel is a partner in the Company. The termlaw firm of this agreement expires on January 28, 2006, subjectAkin Gump Strauss Hauer & Feld LLP, which provides legal services to earlier termination in certain circumstances. In addition, the Company granted to First Canada Management Consults Limited the following options to acquire shares of Class A Common Stock: 175,000 options in 2003; 75,000 options in 2002, which were later cancelled; and 180,000 options in 2001.our company.

Compensation Committee Interlocks and Insider Participation

Walter Loeb (Chairman), Wilfred Posluns and George H. Benter, Jr. serveserved as members of the Compensation/Option Committee.Compensation Committee during fiscal year 2003. None of these individuals arewere executive officers or employees of the Company.our company. Our current Compensation Committee consists of Henry Winterstern, Howard Gross and Walter Loeb.

Report of the Compensation/Option Committee on Executive Compensation

The primary duties of the Compensation/OptionCompensation Committee include: (i) reviewing the compensation levels of the Company’sour company’s primary executive officers and certain other members of senior management, (ii) consulting with and making recommendations to the Company’sour company’s Board of Directors regarding the Company’s overall policy

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of granting options and awards under the Company’sour company’s long-term incentive plans, (iii) monitoring the performance of senior management, (iv) granting stock options to executive officers and other key employees, and (v) related matters. The Board of Directors has affirmatively determined that each member of the Compensation/OptionCompensation Committee is independent in accordance with Nasdaq National Market listing standards.

Compensation Philosophy

The Company’sOur company’s executive compensation programs are based upon the recognition that The Wet Seal, Inc. competes in a creative industry in which it is critical to stay current with rapidly changing trends and styles. Competition is intense for talented executives who can successfully guide a company in this type of competitive environment. Therefore, the Company’sour company’s compensation programs are designed to provide total compensation packages that will both attract talented individuals to the Companyour company as well as provide rewards based upon the Company’sour company’s long-term success.

With these principles in mind, the Compensation/OptionCompensation Committee has set forth the following guidelines:

1. Provide base salaries that are competitive in the retail apparel industry to attract and retain talented individuals;

2. Provide annual bonuses that are tied to the Company’sour company’s short-term performance to align the interests of the Company’sour company’s executives with those of its stockholders; and

3. Provide long-term incentive benefits that will reward long-term commitment to the Company.our company.

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Compensation of Executive Officers

Base salaries for executive officers are established with a view to the responsibilities of the position and the experience of the individual. Salary levels are also fixed with reference to comparable companies in retail and related trades. The salaries of key executive officers and the incentive plans in which they participate are reviewed annually by the Compensation/Option Committee in light of the Committee’s assessment of individual performance, contribution to the Companyour company and level of responsibility.

Executive officers are eligible to receive annual cash bonuses with a percentage based on the profitability of the Companyour company and another percentage based on individual performance. The Compensation/OptionCompensation Committee believes that tying annual cash bonuses to the Company’sour company’s profitability aligns the interests of management with stockholders and encourages intensive efforts to attain and increase profitability.

The CompanyOur company maintains an employee stock bonus plan in which the top executives and other key employees of the Companyour company are eligible to participate. Awards under this plan are calculated by multiplying the Company’sour company’s fiscal year end pre tax profit (if any) as a percentage of sales by the employee’s base salary and dividing such amount by the price of the Company’sour company’s Class A Common Stock as of the end of the fiscal year. Grants under the stock bonus plan vest over a period of three years.

Stock options are granted to executive officers and other key employees whose contributions are considered important to the long-term success of the Companyour company pursuant to the Company’sour company’s long-term incentive plans. Stock options have historically been granted by the Compensation/OptionCompensation Committee on a case-by-case basis based upon management’s recommendations and the Committee’s evaluation of an individual’s past contributions and potential future contributions to the Company.our company. In granting stock options, the Compensation/OptionCompensation Committee takes into consideration the anticipated long-term contributions of an individual to the potential growth and success of the Company,our company, as well as the number of options previously granted to the individual.

Compensation of the Chief Executive Officer

On June 30, 2003, Peter D. Whitford was appointed Chief Executive Officer by the boardour Board of directors.Directors. For fiscal year 2003, Mr. Whitford was compensated in accordance with his employment agreement, which is described elsewhereunder the heading “Employment Agreements with our Executive Officers” in this Proxy Statement.proxy statement. Mr. Whitford’s employment with our company was terminated effective as of November 4, 2004.

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Irving Teitelbaum, former Chairman of the Board, served as interim Chief Executive Officer from February 5, 2003, to June 30, 2003. In his capacity as interim Chief Executive Officer, Mr. Teitelbaum received compensation of $23,077.

Limitations on Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code, of 1986, as amended (the “Code”), enacted as part of the Revenue Reconciliation Act of 1993, limits the deductibility of compensation paid to certain executive officers of the Company beginning with the Company’s taxable year 1994. To qualify for deductibility under Section 162(m), compensation in excess of $1 million per year paid to the Chief Executive Officer and the four other most highly compensated executive officers at the end of such fiscal year generally must be either (1) paid pursuant to a written binding contract in effect on February 17, 1993, or (2) “performance-based” compensation as determined under Section 162(m). In order to be considered “performance-based” for this purpose, compensation must be paid solely on account of the attainment of one or more pre-established performance goals established by a committee of two or more “outside directors,” pursuant to an arrangement that has been disclosed to and approved by stockholders. Also, in order for an arrangement to give rise to fully deductible “performance-based” compensation, the terms of the arrangement must preclude the exercise of any discretion in the administration of the plan that would have the effect of increasing compensation paid thereunder.

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Policy with Respect to Qualifying Compensation Deductibility

The Company’sOur policy with respect to the deductibility limit of Section 162(m) of the Code generally is to preserve the federal income tax deductibility of compensation paid when it is appropriate and is in the best interest of the Companyour company and its stockholders. However, the Companyour company reserves the right to authorize the payment of non-deductible compensation if it deems that it is appropriate.

Compensation/Option Committee

Walter Loeb (Chairman)

Wilfred Posluns

George H. Benter, Jr.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of January 31, 2004 about the Company’sour Class A Common Stock that may be issued upon the exercise of options, warrants and rights granted to employees, consultants or members of the Board of Directors under all of the Company’sour company’s existing equity compensation plans, including the Company’sour company’s 1996 Long-Term Incentive Plan and 2000 Stock Incentive Plan, each as amended.

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Stock Price Performance Graph

The following graph compares the cumulative stockholder return on the Company’sour company’s Class A Common Stock with the return on the Total Return Index for the NASDAQNasdaq Stock Market (US) and the NASDAQNasdaq Retail Trade Stocks. The graph assumes $100 invested on January 29, 1999 in the stock of The Wet Seal, Inc., the NASDAQNasdaq Stock Market (US) and the NASDAQNasdaq Retail Trade Stocks. It also assumes that all dividends are reinvested.

Performance Graph for the Class A Common Stock of The Wet Seal, Inc.