STROUDS INC, DEF 14A, 1997-06-05

STROUDS INC
DEF 14A, 1997-06-05
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JUNE 6, 1997

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant / /
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12

STROUDS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In 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 computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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STROUDS, INC.
780 SOUTH NOGALES STREET
CITY OF INDUSTRY, CA 91748

June 6, 1997

To Our Stockholders:

You are cordially invited to attend the Strouds, Inc. (the "Company") Annual
Meeting of Stockholders ("Annual Meeting") which will be held on July 8, 1997,
at 10:00 a.m. at Industry Hills Sheraton, One Industry Hills Parkway, City of
Industry, California 91744. All stockholders of record as of May 16, 1997 are
entitled to vote at the Annual Meeting.

The Annual Meeting will be held to: (a) elect six directors, (b) approve
certain amendments to the Company's Amended and Restated 1994 Equity
Participation Plan to, among other things, (i) increase the number of shares of
the Company's Common Stock available for issuance thereunder from 850,000 to
1,250,000, and (ii) amend the formula grant provisions to provide for an annual
grant of 2,000 options to the Company's non-employee directors, (c) ratify the
appointment of independent public accountants for the fiscal year ending on
February 28, 1998, and (d) transact such other business as may properly be
brought before the Annual Meeting or any adjournments thereof.

We hope you will attend the Annual Meeting in person. Whether or not you
expect to attend the Annual Meeting, please complete, sign, date and return the
enclosed proxy card promptly to ensure that your shares will be represented at
the Annual Meeting. If you attend the Annual Meeting, you may vote in person
even if you have sent in your proxy card.

Sincerely,

/s/ Wilfred C. Stroud

Wilfred C. Stroud
PRESIDENT AND CHAIRMAN
<PAGE>
STROUDS, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

The Annual Meeting of Stockholders of Strouds, Inc. (the "Company") will be
held at Industry Hills Sheraton, One Industry Hills Parkway, City of Industry,
California on Tuesday, July 8, 1997, at 10:00 a.m. to:

1. elect six directors;

2. approve certain amendments to the Company's Amended and Restated
1994 Equity Participation Plan to, among other things (i) increase the
number of shares of the Company's Common Stock available for issuance
thereunder from 850,000 to 1,250,000, and (ii) amend the formula grant
provisions to provide for an annual grant of 2,000 options to the Company's
non-employee directors;

3. ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent public accountants for the fiscal year ending on February 28,
1998; and

4. transact such other business as may properly be brought before the
Annual Meeting or any adjournments thereof.

Stockholders of record at the close of business on May 16, 1997 are entitled
to notice of and to vote at the Annual Meeting. The list of stockholders will be
available for examination for the ten days prior to the Annual Meeting at
Strouds, Inc., 780 South Nogales Street, City of Industry, California 91748.

All stockholders are cordially invited to attend the Annual Meeting.

PLEASE COMPLETE THE ACCOMPANYING PROXY AND RETURN IT IN THE ENCLOSED
ADDRESSED ENVELOPE.

By Order of the Board of Directors

/s/ Wilfred C. Stroud

Wilfred C. Stroud
PRESIDENT AND CHAIRMAN

City of Industry, California
June 6, 1997
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PROXY STATEMENT

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Strouds, Inc. ("Strouds" or the "Company")
for use at the Annual Meeting of Stockholders to be held on July 8, 1997 (the
"Annual Meeting").

The Company's principal executive offices are located at 780 South Nogales
Street, City of Industry, California 91748. A copy of the Company's fiscal 1996
Annual Report to Stockholders and this Proxy Statement and accompanying proxy
card will be first mailed to stockholders on or about June 6, 1997.

VOTING PROCEDURES

A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to sign, date and return the proxy card in the accompanying
envelope, which is postage prepaid if mailed in the United States.

You have three choices on each of the matters to be voted upon at the Annual
Meeting. Concerning the election of directors, by checking the appropriate box
on your proxy card you may: (a) vote for all of the director nominees as a
group; (b) withhold authority to vote for all director nominees as a group; or
(c) vote for all director nominees as a group except those nominees you identify
on the appropriate line. Concerning the approval of certain amendments to the
Company's Amended and Restated 1994 Equity Participation Plan and the
ratification of independent public accountants, by checking the appropriate box
you may: (a) vote "For" the item; (b) vote "Against" the item; or (c) "Abstain"
from voting on the item. The effects of Abstentions and votes Against certain
matters are discussed further below.

Stockholders may vote by either completing and returning the enclosed proxy
card prior to the Annual Meeting, voting in person at the Annual Meeting, or
submitting a signed proxy card at the Annual Meeting.

YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO SIGN AND RETURN THE
ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.

You may revoke your proxy at any time before it is actually voted at the
Annual Meeting by delivering written notice of revocation to the Secretary of
the Company at 780 South Nogales Street, City of Industry, California, 91748, by
submitting a later dated proxy, or by attending the Annual Meeting and voting in
person. Attendance at the Annual Meeting will not, by itself, constitute
revocation of the proxy. You may also be represented by another person present
at the Annual Meeting by executing a form of proxy designating such person to
act on your behalf.

Each unrevoked proxy card properly signed and received prior to the close of
the Annual Meeting will be voted as indicated. Unless otherwise specified on the
proxy, the shares represented by a signed proxy card will be voted FOR items 1,
2 and 3 on the proxy card and will be voted in the discretion of the persons
named as proxies on the other business that may properly come before the Annual
Meeting.

If a proxy card indicates an abstention or a broker non-vote on a particular
matter, then the shares represented by such proxy will be counted for quorum
purposes. If a quorum is present, an abstention will have the effect of a vote
against the matter (except for the election of directors and the approval of the
Amendments to the 1994 Equity Participation Plan in which case such abstention
has no effect) and broker non-votes will have no effect.

The presence at the Annual Meeting, in person or by proxy, of a majority of
the shares of the Company's Common Stock ("Common Stock") issued and outstanding
on May 16, 1997, will constitute a quorum.
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Votes cast at the Annual Meeting will be tabulated by the persons appointed
by the Company to act as inspectors of election for the Annual Meeting.

SHARES ENTITLED TO VOTE AND REQUIRED VOTE

Stockholders of record at the close of business on May 16, 1997 are entitled
to vote at the Annual Meeting. At that date, 8,535,812 shares of Common Stock
were outstanding. Each share of Common Stock is entitled to one vote. In all
matters other than the election of directors, the affirmative vote of a majority
of the shares of Common Stock that are represented in person or represented by
proxy at the Annual Meeting and entitled to vote is required to approve each
matter. Directors shall be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on the election of directors.

SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

Set forth in the following table is the beneficial ownership of the
Company's Common Stock as of May 14, 1997, for (1) each of the Named Executive
Officers (as defined under the table titled "Executive Compensation"), (2) each
person who is as of May 14, 1997 a director of the Company and all nominees to
the Board of Directors, and (3) all current directors and current executive
officers as of May 14, 1997 as a group. Pursuant to the rules of the Securities
and Exchange Commission, in calculating percentage ownership, each person is
deemed to beneficially own his own shares subject to options exercisable within
60 days, but options owned by others (even if exercisable within 60 days) are
deemed not to be outstanding shares.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER POSITION OWNED CLASS
- ------------------------------------------ ------------------------------------------ -------------- -----------
<S> <C> <C> <C>
Wilfred C. Stroud President and Chairman 800,638 9.4%
Wayne P. Selness President, Chief Executive Officer and 350,500(a) 4.0%
Director
Jonathan W. Spatz Senior Vice President, Chief Financial 194(b) *
Officer and Director
Robert C. Widdess Senior Vice President-- Merchandising 23,981(c) *
Joseph A. Imbrogulio Senior Vice President--Store Planning and 17,831(d) *
Director
Martin M. Jelenko Director 5,000(e) *
Andrew S. Hochberg Director -- (f) *
Larry R. Bemis Director -- (g) *
Dale D. Achabal Director -- (g) *
Marco F. Weiss Nominee for Director -- (g) *
All directors and executive officers as a group (6 persons) 826,163(h) 9.7%
</TABLE>

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* Less than 1%.

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(a) Beneficial ownership includes 201,247 shares of Common Stock which may be
acquired upon exercise of employee stock options exercisable within the next
60 days of which 68,247 expire on July 4, 1997. Mr. Selness resigned from
his position as an officer and a director of the Company on April 4, 1997.

(b) Mr. Spatz has resigned from his position as an officer of the Company
effective June 13, 1997. Mr. Spatz was appointed a director of the Company
in May 1997 and is a nominee for re-election to the Board of Directors at
the Annual Meeting.

(c) Beneficial ownership includes 5,192 shares of Common Stock which may be
acquired upon exercise of employee stock options in advance of their
expiration on June 19, 1997. Mr. Widdess resigned from his position as an
officer of the Company in March 1997.

(d) Beneficial ownership includes 5,017 shares of Common Stock which may be
acquired upon exercise of employee stock options exercisable in advance of
their expiration on June 31, 1997. Mr. Imbrogulio retired from his position
as an officer of the Company in March 1997. Mr. Imbrogulio was appointed a
director of the Company in May 1997 and is a nominee for election at the
Annual Meeting.

(e) Represents 5,000 shares of Common Stock which may be acquired upon exercise
of employee stock options exercisable within the next 60 days. Mr. Jelenko
resigned from his position on the Board of Directors in May 1997.

(f) Mr. Hochberg has informed the Company that he declines to stand for
re-election as a director of the Company at the Annual Meeting.

(g) Mr. Bemis and Mr. Achabal have been appointed directors of the Company
effective June 1, 1997 and both are nominees for election as directors at
the Annual Meeting. Mr. Weiss has been nominated by the Board of Directors
for election at the Annual Meeting.

(h) Beneficial ownership includes 10,017 shares of Common Stock which may be
acquired upon exercise of employee stock options exercisable within the next
60 days.

COMPLIANCE WITH SECTION 16(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act") requires the Company's directors and officers, and persons who own more
than ten percent of a registered class of the Company's equity securities
("Insiders"), to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of Common Stock. Insiders are required by the Commission's regulations to
furnish the Company with copies of all Section 16(a) reports filed by such
persons.

With the exception of a late Form 3 filing for Mr. Hochberg, to the
Company's knowledge, based solely on its review of the copies of such reports
furnished to the Company and written representations from the Insiders that no
other reports were required, during the fiscal year ended March 1, 1997, all
Section 16(a) filing requirements applicable to Insiders were complied with.

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<PAGE>
PROPOSAL NO. 1
ELECTION OF BOARD OF DIRECTORS

GENERAL INFORMATION--ELECTION OF DIRECTORS

Pursuant to the Company's Bylaws and resolutions adopted by the Company's
Board of Directors, the Company currently has six directors. Directors are
elected at the Annual Meeting and will serve until the 1998 Annual Meeting and
until each respective successor shall have been elected or appointed. Mr.
Hochberg has informed the Company that he does not intend to stand for
re-election at the Annual Meeting.

In the absence of instructions to the contrary, votes will be cast for the
election of the following as directors pursuant to the proxies solicited hereby.
In the event any nominee is unable or declines to serve as a director at the
time of the Annual Meeting, the proxy will be voted for any substitute nominee
selected by the current Board of Directors. However, the proxy cannot be voted
for a greater number of persons than the number of nominees designated by the
Board of Directors. Management has no reason to believe, at this time, that the
persons named herein will be unable or will decline to serve if elected, and
each nominee has informed the Company that he will serve if elected.

The following table sets forth the name of, and certain information with
respect to, the six persons nominated by the Company at the Annual Meeting.

NOMINEES FOR ELECTION AS A DIRECTOR

<TABLE>
<CAPTION>
DIRECTOR POSITIONS CURRENTLY HELD WITH THE
NOMINEES FOR DIRECTOR AGE SINCE COMPANY
- ---------------------------------------------- --- ----------- ----------------------------------------
<S> <C> <C> <C>
Wilfred C. Stroud(1).......................... 71 1979 President and Chairman
Jonathan W. Spatz(1).......................... 41 1997 Director
Joseph A. Imbrogulio(1)(3).................... 71 1997 Director
Larry R. Bemis(2)............................. 52 1997 Director
Dale D. Achabal(2)(3)......................... 51 1997 Director
Marco F. Weiss................................ 65 1997 Nominee for Director
</TABLE>

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(1) Member of Executive Committee.

(2) Member of Audit Committee.

(3) Member of Compensation Committee.

WILFRED C. STROUD: Mr. Stroud has served as Chairman and a director of the
Company since founding Strouds in 1979. Mr. Stroud also served as Chief
Executive Officer from the inception of the Company through May 1994 and as
President of the Company from 1979 to May 1991. Prior to founding Strouds, from
1956 to 1979, Mr. Stroud was employed by the Broadway Division of Carter-Hawley
Hale where he spent eight years as a Divisional Merchandise Manager.

JONATHAN W. SPATZ: Mr. Spatz was appointed as Secretary and a director in
May 1997. Mr. Spatz served as Senior Vice President--Finance and Chief Financial
Officer of the Company from August 1994 until his resignation as an officer
effective June 13, 1997. Prior to joining the Company, Mr. Spatz was a business
consultant from August 1993 to August 1994. From March 1989 to August 1993, Mr.
Spatz served as Vice President -- Finance and Chief Financial Officer of Chief
Auto Parts, Inc. (a specialty retailer of auto parts and accessories).

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JOSEPH A. IMBROGULIO: Mr. Imbrogulio was appointed a director in May 1997.
Mr. Imbrogulio served as Senior Vice President--Stores of the Company from 1983
until his retirement in March 1997. Prior to joining Strouds, Mr. Imbrogulio was
employed from 1972 to 1983 as Vice President--National Sales Manager of Western
States Home Products. From 1955 to 1973, Mr. Imbrogulio served as Home
Furnishings Merchandise Manager at Broadway Department Stores and Vice
President--Retail Stores of Sunset House, both divisions of Carter-Hawley Hale.

LARRY R. BEMIS: Mr. Bemis was appointed a director effective June 1, 1997.
Mr. Bemis is a partner in the Newport Beach law firm of Millar, Hodges and
Bemis, specializing in business, income and estate tax planning, real estate and
corporate law. Prior to forming Millar, Hodges and Bemis, Mr. Bemis was a
partner at Witter and Harpole, in Newport Beach, where he began his law practice
in 1973. Prior to joining Witter and Harpole, Mr. Bemis was a revenue agent with
the Internal Revenue Service in Los Angeles. Mr. Bemis provides certain legal
services to the Company. See "Certain Transactions--Other Relationships."

DALE D. ACHABAL: Dr. Achabal was appointed a director effective June 1,
1997. Dr. Achabal is Director of the Retail Management Institute and is the L.J.
Skaggs Distinguished Professor at Santa Clara University. Dr. Achabal also
directs the Retail Workbench Research & Education Center, sponsored by a
consortium of leading retailers from around the world and is also a member of
the Information Technology Council of the National Retail Federation, the
Editorial Board of the Journal of Retailing. Dr. Achabal is a consultant to a
variety of retail organizations in the United States, Europe and Asia Pacific in
the areas of strategic marketing planning, retail information systems and
marketing research.

MARCO F. WEISS: Mr. Weiss was nominated by the Board to the slate of
director nominees in May 1997. Since 1995 Mr. Weiss has maintained an office
with the Goldman & Kagon Law Corporation specializing in international business
transactions. From 1991 to 1996, Mr. Weiss served as Chairman of ECONT, a
Russian American Joint Venture. From 1991 to 1994, Mr. Weiss served as
Vice-Chairman and Chief Operating Officer of the Marvol Group, a diversified
Russian Company with a global presence dealing, among other things, in
manufacturing and the merchandising of consumer products. During the same period
Mr. Weiss also served as a consultant in American Law in the United Kingdom.
Prior to relocating abroad, Mr. Weiss was a partner in a number of Los Angeles
law firms and specialized in capital formation and securities transactions.

COMPENSATION OF DIRECTORS

The Company provides for the grant to each non-employee director, as of the
date that such non-employee director is initially elected to the Board, of
non-qualified stock options to purchase 10,000 shares of Common Stock of the
Company. These options have a term of ten years, an exercise price of 100% of
the fair market value of a share of Common Stock on the date the options are
granted and will become exercisable in four cumulative 25% installments on each
successive one year anniversary of the date the option is granted. The Company
pays each director who is neither an employee of the Company nor associated with
one of the Company's principal stockholders a $1,000 fee for each meeting of the
Board of Directors attended and, if not held in conjunction with a regular Board
of Directors meeting, a $500 fee for each Board of Directors committee meeting
attended. The Company also reimburses all directors for all expenses incurred in
connection with their activities as directors.

In May 1997, the Compensation Committee recommended, and the Board of
Directors unanimously adopted, subject to stockholder approval, an amendment to
the Company's 1994 Equity Participation Plan,

5
<PAGE>
to add a formula grant provision to provide for an annual grant of 2,000
non-qualified stock options to purchase shares of the Common Stock of the
Company to each of the Company's non-employee directors. See "Proposal No.
2--Amendment of the 1994 Equity Participation Plan of Strouds, Inc."

In September 1996, Mr. Hochberg was awarded stock options to purchase 10,000
shares of Common Stock under the Company's 1994 Equity Participation Plan. This
award vests in 25% installments over the first four years following the original
date of grant. Mr. Hochberg has informed the Company that he will not be
standing for re-election at the Annual Meeting. Pursuant to the Company's 1994
Equity Participation Plan, Mr. Hochberg's options will expire upon the date of
the termination of his directorship.

BOARD OF DIRECTORS AND COMMITTEE MEETINGS

BOARD OF DIRECTORS

The Board of Directors met seven times during fiscal year ended March 1,
1997. During that fiscal year, attendance at Board of Directors meetings
averaged 91% and attendance at Committee meetings averaged 81%. No incumbent
directors attended fewer than 75% of the total number of meetings of the Board
and committees of the Board on which they served, except Mr. Jones who attended
67% of the Board and committee meetings.

AUDIT COMMITTEE

As of June 1, 1997, the Audit Committee of the Board of Directors will
consist of Mr. Larry Bemis and Mr. Dale Achabal. Mr. Larry Bemis will serve as
the chair of the Audit Committee. Mr. Noel Urben chaired the Audit Committee
until his resignation from the Board of Directors in May 1997 and Mr. Raymond
Klauer was a member of the Audit Committee until his retirement from the Board
of Directors in March 1997. As directed by the Board of Directors, the functions
of the Audit Committee include (a) reviewing and monitoring the Company's
financial reports and accounting practices, (b) annually recommending to the
Board of Directors for appointment by the Board of Directors independent public
accountants as auditors of the books, records and accounts of the Company, (c)
reviewing the scope of audits made by the independent public accountants and (d)
receiving and reviewing the audit reports submitted by the independent public
accountants and taking such action in respect of such reports as the Audit
Committee deems appropriate. During the fiscal year ended March 1, 1997, the
Audit Committee held two meetings.

COMPENSATION COMMITTEE

As of June 1, 1997, The Compensation Committee of the Board of Directors
will consist of Messrs. Andrew Hochberg, Dale Achabal and Joe Imbrogulio. Mr.
Dale Achabal will serve as the chair of the Compensation Committee. Mr. Ray
Klauer chaired the Compensation Committee until his resignation from the Board
of Directors in March 1997 whereupon Mr. Martin Jelenko served as the chair of
the Committee until his resignation in May of 1997. Mr. George Jones was a
member of the Compensation Committee until his resignation from the Board of
Directors in May 1997. Mr. Andrew Hochberg's term on the Compensation Committee
will terminate as of the Annual Meeting. As directed by the Board of Directors,
the functions of the Compensation Committee include ensuring that the officers
and management personnel of the Company are compensated in terms of salaries,
supplemental compensation and benefits which are internally equitable and
externally competitive, and administering the following benefit plans (as such
plans may be amended from time to time) of the Company: Stock Option Plan for
Executive

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<PAGE>
and Key Employees; 1994 Equity Participation Plan; and 1994 Employee Qualified
Stock Purchase Plan. During the fiscal year ended March 1, 1997, the
Compensation Committee held five meetings.

EXECUTIVE COMMITTEE

The Executive Committee of the Board of Directors is presently comprised of
Messrs. Wilfred Stroud, Jonathan Spatz and Joseph Imbrogulio. Mr. Wilfred Stroud
chairs the committee. Mr. Wayne Selness was a member of the Executive Committee
until his resignation in April 1997 and Messrs. Noel Urben and George Jones were
members of the Executive Committee until their resignations in May 1997. As
directed by, and between meetings of, the Board of Directors, the function of
the Executive Committee is to exercise the authority and power of the Board of
Directors to manage the Company's business and affairs, except for certain
duties specifically reserved to the full Board of Directors in the Company's
Bylaws. During the fiscal year ended March 1, 1997, the Executive Committee held
no meetings.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
EACH OF THE DIRECTORS NOMINATED IN PROPOSAL NO. 1

7
<PAGE>
PROPOSAL NO. 2
AMENDMENT OF THE 1994 EQUITY PARTICIPATION PLAN
OF STROUDS, INC.

In May 1994, the Company adopted the 1994 Equity Participation Plan of the
Company to attract and retain directors, officers and key employees. On
September 1, 1994, the Company adopted the Amended and Restated 1994 Equity
Participation Plan of the Company (the "1994 Plan"), which preserves the plan as
adopted in May 1994 in its entirety with adjustments for the stock split
approved by the Board on July 27, 1994.

On May 14, 1997, the Compensation Committee recommended, and the Board of
Directors unanimously adopted, subject to stockholder approval, certain
amendments to the 1994 Plan to, among other things, (i) increase the number of
shares of the Company's Common Stock ("Common Stock") available for issuance
thereunder from 850,000 to 1,250,000, and (ii) amend the formula grant
provisions to provide for an annual grant of 2,000 options to the Company's
non-employee directors. The amendment, together with certain other revisions to
conform the 1994 Plan to the requirements of the federal securities laws, is
reflected in the First Amendment to the 1994 Plan (the "First Amendment.")

SUMMARY OF PROPOSED CHANGES

The 1994 Plan currently permits options to be granted covering up to 850,000
shares of Common Stock. The Board of Directors proposes to amend the 1994 Plan
to provide for an increase in the number of shares of Common Stock reserved for
issuance thereunder from 850,000 to 1,250,000. As of April 30, 1997
approximately 83.4% of the shares of Common Stock reserved for issuance under
the 1994 Plan were subject to outstanding options leaving only approximately
141,277 shares of Common Stock reserved for issuance under the 1994 Plan. The
Board of Directors believes that the increase in the number of shares of Common
Stock available for issuance as provided in the First Amendment will provide the
Compensation Committee with greater flexibility in the administration of the
1994 Plan and is appropriate in light of the expected addition of new employees
and directors who will be subject to the 1994 Plan.

The 1994 Plan currently provides for the grant to each non-employee
director, as of the date that such non-employee director is initially elected to
the Board, of a non-qualified stock option ("NQSO") to purchase 10,000 shares of
Common Stock. The Board proposes to amend the 1994 Plan to provide that, in
addition to these NQSOs, each non-employee director who is re-elected to the
Board shall receive a subsequent option to purchase 2,000 shares of Common Stock
at the time of such re-election. All such options shall have a term of ten
years, shall have an exercise price equal to 100% of the Fair Market Value of a
share of Common Stock on the date the option is granted, and will become
exercisable in four cumulative 25% installments on each successive one year
anniversary of the date on which the option is granted, subject to acceleration
upon the optionee's retirement from the Board in accordance with the Company's
retirement policy applicable to directors.

The 1994 Plan currently defines the Fair Market Value as the mean between
the highest and lowest selling price of a share of Commons Stock on the
principal exchange on which shares of Common Stock are then trading, if any, on
such date. The Board proposes to amend the definition to define Fair Market
Value as the closing price of the Common Stock on the day the option is granted.

The principal features of the 1994 Plan as proposed to be amended by the
First Amendment are summarized below. The 1994 Plan together with the First
Amendment, are herein referred to as the

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<PAGE>
Amended Plan. This summary is not intended to be complete and reference should
be made to the 1994 Plan and the First Amendment collectively and in their
entirety.

THE AMENDED PLAN

An aggregate of 1,250,000 shares of the Common Stock (or their equivalent in
other equity securities), subject to adjustment for stock splits, stock
dividends and similar events, subject to stockholder approval, has been
authorized for issuance upon exercise of options, stock appreciation rights
("SARs"), and other awards, or as restricted or deferred stock awards under the
Amended Plan. The maximum number of shares which may be subject to options or
SARs granted under the Amended Plan to any individual in any calendar year
cannot exceed 100,000 (the "Award Limit"). The Compensation Committee
administers the Amended Plan and determines to whom options, SARs, restricted
stock purchase rights and other awards are to be granted and the terms and
conditions, including the number of shares and the period of exercisability,
thereof. The following general discussion describes the terms of the Amended
Plan which apply to key employees and officers of the Company and directors who
are employed by the Company. The special provisions of the Amended Plan which
apply to stock option grants made to directors of the Company who are not
employees of the Company ("non-employee directors") are described at the end of
this section.

The Amended Plan authorizes the grant or issuance of various options and
other awards, and the terms of each such option or award will be set forth in a
separate agreement. NQSOs may be granted for any term specified by the
Compensation Committee and will provide for the right to purchase Common Stock
at a specified price which, except with respect to NQSOs intended to qualify as
performance-based compensation under Section 162(m) of the Code, may be less
than fair market value on the date of grant (but not less than par value), and
may become exercisable (in the discretion of the Compensation Committee) in one
or more installments after the grant date. Incentive Stock Options ("ISOs") may
be granted only to employees, and if granted, will be designed to comply with
the provisions of the Code and will be subject to restrictions contained in the
Code, including having an exercise price equal to at least 100% of fair market
value of Common Stock on the grant date and a ten year restriction on their
term, but may be subsequently modified to disqualify them from treatment as an
ISO. SARs granted by the Compensation Committee in connection with stock options
or other awards typically will provide for payments to the holder based upon
increases in the price of the Common Stock over the exercise price of the
related option or other awards, but alternatively may be based upon criteria
such as book value. Participants may receive dividend equivalents representing
the value of the dividends per share paid by the Company, calculated with
reference to the number of shares covered by the stock options, SARs or other
awards held by the participant. Performance awards may be granted by the
Compensation Committee on an individual or group basis and may include bonus or
"phantom" stock awards that provide for payments based upon increases in the
price of the Common Stock over a predetermined period. Restricted stock may be
sold to participants at various prices (but not below par value) and made
subject to such restrictions as may be determined by the Compensation Committee.
Deferred stock may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Compensation Committee. Whereas
purchasers of restricted stock will have voting rights and will receive
dividends prior to the time when the restrictions lapse, recipients of deferred
stock generally will have no voting or dividend rights prior to the time when
vesting conditions are satisfied.

9
<PAGE>
Under the Amended Plan, each non-employee director is granted a NQSO to
purchase 10,000 shares automatically upon the date of an initial public offering
of the Common Stock or upon becoming an non-employee director after such date.
In addition, the Amended Plan will provide that each non-employee director who
is re-elected to the Board shall receive a subsequent option to purchase 2,000
shares of Common Stock at the time of such re-election. The Amended Plan
provides that all stock options granted to non-employee directors will have a
term of ten years, will have an exercise price equal to 100% of the fair market
value of a share of the Common Stock on the date the option is granted, and will
become exercisable in four cumulative 25% installments on each successive one
year anniversary of the date on which the option is granted, subject to
acceleration upon the optionee's retirement from the Board in accordance with
the Company's retirement policy applicable to directors. The Board administers
the Amended Plan with respect to options granted to non-employee directors.

Payments for the shares purchased upon the exercise of options may be in
cash or, if the terms of an option so provide, with shares of Common Stock owned
by the optionee (or issuable upon exercise of the option) or with other lawful
consideration.

No option, SAR or other right to acquire Common Stock granted under the
Amended Plan may be assigned or transferred by the grantee, except by will or
the laws of descent and distribution, although the shares underlying such rights
may be transferred if all applicable restrictions have lapsed. During the
lifetime of the holder of any option or right, the option or right may be
exercised only by the holder.

The Amended Plan provides that, in the discretion of the Compensation
Committee, no options or other awards may be exercised upon a change in control
of the Company. In its discretion, however, the Compensation Committee may
provide that for a specified period of time prior to such a change in control,
options and other awards shall be exercisable as to all shares covered thereby
and restrictions on awards shall cease or a successor corporation shall assume
or replace such options.

Amendments to the Amended Plan to increase the number of shares as to which
options, SARs, restricted stock and other awards may be granted (except for
adjustments resulting from stock splits and the like) or to modify the Award
Limit require the approval of the Company's stockholders. In all other respects
the Amended Plan may be amended, modified, suspended or terminated by the
Compensation Committee, unless such action would otherwise require stockholder
approval under the Amended Plan or as a matter of applicable law, regulation or
rule. Amendments of the Amended Plan will not, without the consent of the
participant, affect such person's rights under an award previously granted,
unless the award itself otherwise expressly so provides. The Amended Plan will
expire on August 31, 2004.

The ISOs have a ten-year term and become exercisable in five cumulative 20%
installments on each successive one year anniversary of the date the option is
granted (although the Compensation Committee may accelerate exercisability).

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

Under current federal laws, in general, recipients of awards and grants of
nonqualified stock options, stock appreciation rights, restricted stock,
deferred stock, dividend equivalents, performance awards, and stock payments
under the 1994 Plan are taxable under Section 83 of the Internal Revenue Code of
1986, as amended (the "Code") upon their receipt of Common Stock or cash with
respect to such awards or grants and, subject to Section 162(m) of the Code, the
Company will be entitled to an income tax deduction with respect to the amounts
taxable to such recipients. Under Sections 421 and 422 of the Code, recipients
of ISOs are generally not taxable on their receipt of Common Stock upon their
exercise of ISOs if the ISOs

10
<PAGE>
and option stock are held for certain minimum holding periods and, in such
event, the Company is not entitled to income tax deductions with respect to such
exercises. Participants in the Plan will be provided with detailed information
regarding the tax consequences relating to the various types of awards and
grants under the Plan.

Under Section 162(m) of the Code ("Section 162(m)"), income tax deductions
of publicly-held corporations may be limited to the extent total compensation
(including base salary, annual bonus, stock option exercises and non-qualified
benefits paid) for certain executive officers exceeds $1 million (less the
amount of any "excess parachute payments" as defined in Section 280G of the
Code) in any one year. However, under Section 162(m), the deduction limit does
not apply to certain "performance-based compensation" established by an
independent compensation committee which is adequately disclosed to, and
approved by, stockholders. In particular, stock options and SARs will satisfy
the "performance-based compensation" exception if the awards are made by a
qualifying compensation committee, the plan sets the maximum number of shares
that can be granted to any person within a specified period and the compensation
is based solely on an increase in the stock price after the grant date (i.e. the
option exercise price is equal to or greater than the fair market value of the
stock subject to the award on the grant date). Remuneration attributable to
stock options and SARs granted under the Plan will not be subject to the $1
million limitation if these conditions are satisfied. Rights or awards granted
under the Plan, other than options and SARs, will not qualify as "qualified
performance-based compensation" for purposes of Section 162(m) unless such
rights or awards are granted or vest upon preestablished objective performance
goals, the material terms of which are disclosed to and approved by the
stockholders of the Company.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE FIRST
AMENDMENT TO THE 1994 EQUITY PARTICIPATION PLAN OF STROUDS, INC. AS SET FORTH
IN PROPOSAL NO. 2

PROPOSAL NO. 3
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors, upon recommendation of the Audit Committee, has
appointed KPMG Peat Marwick LLP as the Company's independent public accountants
for the fiscal year ending February 28, 1998. KPMG Peat Marwick LLP has been the
Company's independent public accountants since fiscal 1987. A representative of
KPMG Peat Marwick LLP will be present at the Annual Meeting and will be given an
opportunity to make a statement and answer questions. This appointment is being
submitted for ratification at the Annual Meeting. If the appointment is not
ratified, the appointment will be reconsidered by the Board of Directors,
although the Board of Directors will not be required to appoint different
independent auditors for the Company.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR
THE FISCAL YEAR ENDING FEBRUARY 28, 1998
AS SET FORTH IN PROPOSAL NO. 3.

11
<PAGE>
EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL

The executive officers and certain key personnel of the Company as of June
13, 1997 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- --------------------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS

Wilfred C. Stroud 71 President, Chairman and Director
Douglas C. Felderman 44 Vice President--Finance

KEY PERSONNEL

Carolyn A. Bush 41 Vice President--Home Services
Roberta A. Chavance 46 Vice President--Human Resources
Anthony M. Joseph 63 Vice President--Management Information Services
Denise Marsicano 42 Vice President--Stores
Paul T. Stenbo 42 Vice President--Creative Services
</TABLE>

In addition to Mr. Stroud whose biography appears on page 4, the following
persons are executive officers and key personnel of the Company.

Mr. Felderman has served as Vice President--Finance of the Company since
November 1995. Mr. Felderman served as Vice President, Chief Financial Officer
for Crocodile Enterprises, Inc. from April 1994 to September 1995 (a restaurant
operator of casual full service and quick service restaurants.) From September
1990 to April 1994 he was a business consultant.

Ms. Bush joined Strouds in January 1996 as Vice President--Home Services.
Prior to joining Strouds, Ms. Bush served as Vice President of Lease and Cost
Divisions for Broadway Stores Inc., formerly Carter-Hawley Hale, from June 1994
through December 1995. From March 1992 through May 1994 she served as Executive
Vice President and Chief Operating Officer for East-West Floor Covering, Inc.,
(a small floor covering company specializing in operating lease departments
within department stores.) Prior to that time, Ms. Bush served as Divisional
Vice President of Lease and Home Services, with Broadway Stores, Inc. Ms. Bush
was with Broadway Stores, Inc. for an aggregate of twelve years.

Ms. Chavance has served as Vice President--Human Resources of the Company
since 1990. From 1989 to 1990, Ms. Chavance was the Director of Personnel and,
from 1984 to 1989, the Manager of Personnel and Training.

Mr Joseph has served as Vice President--Management Information Systems of
the Company since August 1994. Prior to joining Strouds, Mr. Joseph served as
Vice President--Management Information Systems of Solo Serve Corporation (as
retailer of off-price family clothing and home fashions) from March 1993 to July
1994. From April 1991 to March 1993, Mr. Joseph served as a Director of Western
Region Retail Consulting (a consulting unit of Coopers & Lybrand). Prior to that
time, Mr. Joseph had founded and was the principal of Bartlett Joseph Associates
(a retail management consultant) from April 1989 to April 1991.

12
<PAGE>
Ms. Marsicano has served as Vice President--Stores of the Company since
1993. From 1989 to 1993, Ms. Marsicano served as Regional Store Manager and from
1988 to 1989 as Store Manager. Prior to joining Strouds, Ms. Marsicano was
employed by Bloomingdales from 1976 to 1988 where she held the position of
Buyer.

Mr. Stenbo has served as Vice President--Creative Services of the Company
since September 1995. From May 1988 to September 1995, Mr. Stenbo was Director
of Visual Merchandising of the Company. Prior to joining Strouds, Mr. Stenbo was
employed by Bullocks Wilshire from October 1987 to May 1988 where he had the
position of Director of Visual Merchandising. From 1983 to 1987, Mr. Stenbo was
employed by Bullocks (now Macy's) as Fashion Coordinator.

13
<PAGE>
EXECUTIVE COMPENSATION

The Summary Compensation Table below sets forth certain compensation
information concerning the Company's former Chief Executive Officer, its two
other most highly compensated current executive officers and two former
executive officers receiving over $100,000 per year for services rendered in all
capacities to the Company during the fiscal year ended March 1, 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SHARES OTHER
------------------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($)(1) OPTIONS (#) ($)(2)
- ------------------------------------------------- ----------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Wayne P. Selness(3) 1996 $ 270,000 $ -- 32,250 $ 2,375(4)
President, Chief Executive 1995 270,000 3,175 154,500 2,466(4)
Officer and Director 1994 227,500 10,522 77,400 859(4)

Wilfred C. Stroud(3) 1996 204,000 -- 12,500 37,293(5)
President, Chairman and Director 1995 195,692 2,293 20,834 41,936(5)
1994 195,000 11,091 -- 65,389(5)

Jonathan W. Spatz(6) 1996 172,115 -- 9,000 29,140(7)
Senior Vice President--Finance, 1995 160,000 1,882 15,000 24,954(7)
Chief Financial Officer and Director 1994 101,538 -- 17,200 18,576(7)

Robert C. Widdess(8) 1996 142,039 -- 4,000 2,131(4)
Senior Vice President--Merchandising 1995 138,000 1,623 6,666 2,220(4)
1994 129,500 7,109 8,600 914(4)

Joseph A. Imbrogulio(9) 1996 126,539 -- 3,600 1,913(4)
Senior Vice President--Store Planning 1995 125,000 1,470 6,000 2,119(4)
1994 125,000 7,110 8,600 865(4)
</TABLE>

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

(1) Reflects bonus received during fiscal years ended February 25, 1995 and
March 2, 1996, respectively, for services rendered during fiscal years ended
February 26, 1994, February 25, 1995 and March 2, 1996 respectively.

(2) Perquisites less than $50,000 or 10% of the total of annual salary and bonus
are not disclosed.

(3) Prior to May 1994, Mr. Stroud served as Chairman and Chief Executive Officer
of the Company and Mr. Selness served as President of the Company. In May
1994, Mr. Selness was elected Chief Executive Officer of the Company, with
Mr. Stroud remaining as Chairman. Mr. Selness resigned from his position as
President and Chief Executive Officer of the Company on April 4, 1997. Mr.
Stroud was elected President of the Company in May 1997.

(4) Represents Company matching contributions to the Company's 401(k) plan on
behalf of the executive officer.

14
<PAGE>
(5) The Company contributed $2,391 to the Company's 401(k) plan on behalf of Mr.
Stroud for the fiscal year ended March 1, 1997, and contributed $2,433 to
the Company's 401(k) plan for the fiscal year ended March 2, 1996 and $574
to the Company's 401 (k) plan and $14,647 in premiums on life insurance for
his benefit for the fiscal year ended February 25, 1995. The Company is a
party to "split dollar" life insurance agreements with a trust established
by Mr. Stroud under which the trust pays the portion of the premiums
attributable to the death benefit under life insurance policies insuring the
lives of Mr. Stroud and his spouse and owned by the trust, and the Company
pays the balance of the premiums. Upon the termination of the agreements or
the deaths of Mr. Stroud and his spouse, all premiums previously advanced by
the Company under the policies are required to be repaid by the trust.
Included in the amounts shown for Mr. Stroud in fiscal years 1996, 1995 and
1994 are $34,902, $39,502 and $50,168, respectively, representing the value
of the premium payments by the Company in such years, projected on an
actuarial basis assuming that Mr. Stroud retires at age 75 and the
agreements are then terminated, and assuming an interest rate equal to the
Company's then incremental borrowing rate.

(6) Mr. Spatz served as Senior Vice President -- Finance and Chief Financial
Officer of the Company from August 1994 until his resignation effective June
13, 1997. Mr. Spatz was appointed a director of the Company in May 1997 and
is a nominee for re-election to the Board of Directors. The salary reported
for fiscal year 1994 reflects compensation received for a partial year.

(7) Included in the amounts shown for Mr. Spatz in fiscal years 1996, 1995 and
1994 are $23,140, $18,954 and $15,345, respectively, relating to relocation
and travel expenses and $6,000, $6,000 and $3,231 respectively, representing
an automobile allowance paid to him by the Company during such years.

(8) Mr. Widdess resigned from his position as an officer of the Company on March
19, 1997.

(9) Mr. Imbrogulio retired from his position as an officer of the Company on
March 31, 1997.

15
<PAGE>
The following table sets forth certain information regarding grants of stock
options made to the executive officers named in the Summary Compensation Table
during the fiscal year ended March 1, 1997, including information as to the
potential realizable value of such options at assumed annual rates of stock
price appreciation for the 10 year option terms.

OPTION GRANTS DURING FISCAL YEAR ENDED MARCH 1, 1997

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SHARES % OF TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EMPLOYEES IN EXERCISE OPTION TERM(1)
OPTIONS FISCAL YEAR ENDED MARCH PRICE PER EXPIRATION ----------------------
NAME ---------------------- GRANTED (#) 1, 1997 SHARE DATE 5% ($) 10% ($)
----------- ------------------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Wayne P. Selness (2)....... 32,250 18.7% $5.31 07/04/97 107,747 273,053
Wilfred C. Stroud.......... 12,500 7.3% $5.31(3) 03/28/06 41,763 105,834
Jonathan W. Spatz(2)....... 9,000 5.2% $5.31 (3) 06/13/97 30,069 76,201
Robert C. Widdess (2)...... 4,000 2.3% $5.31 06/19/97 13,364 33,867
Joseph A. Imbrogulio (2)... 3,600 2.1% $5.31 06/30/97 12,028 30,480
All Optionees.............. 172,300 100% 3.13-5.31 (3) 06/06/97 $ 536,211 $1,358,865
-01/08/07
All Stockholders (4)....... N/A N/A N/A N/A $27,003,172 $68,431,339
All Optionees as a percent
of All Stockholders
Gain..................... N/A N/A N/A N/A 2.0% 2.0%
</TABLE>

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

(1) The dollar amounts under these columns are the result of calculations at
five percent and 10 percent rates set by the Securities and Exchange
Commission and therefore are not intended to forecast possible future
appreciation, if any, of the Company's Common Stock price. In the above
table, the Company did not use an alternative formula for a grant date
valuation, as the Company is not aware of any formula which will determine
with reasonable accuracy a present value based on future unknown or volatile
factors.

(2) Mr. Selness and Mr. Widdess resigned from their respective positions as
Chief Executive Officer and Senior Vice President of the Company on April 4,
1997 and March 19, 1997 respectively. Mr. Imbrogulio retired from his
position as Senior Vice President--Store Planning on March 31, 1997. Mr.
Spatz has tendered his resignation from his position as Senior Vice
President--Finance, Chief Financial Officer and Secretary of the Company
effective June 13, 1997. The Company has agreed to extend the expiration
date of certain of Mr. Selness' options. See "Compensation Committee
Report--Annual Compensation of Executive Officers." Pursuant to the
Company's 1994 Equity Participation Plan, Mr. Widdess', Mr. Imbrogulio's and
Mr. Spatz's options will expire within 90 days of the termination of
employment.

(3) In May 1997, the Compensation Committee determined that it was appropriate
to reprice existing options for all employees in order to more correctly
reflect the fair market value of the Company's Common Stock. See
"Compensation Committee Report--Report on Annual Compensation of Executive
Officers."

(4) These amounts represent the appreciated value which common stockholders
would receive at the hypothetical 5% and 10% rates based on the market value
of Common Stock outstanding at or near the option grant dates.

16
<PAGE>
The following table relates to options exercised during fiscal year 1996 and
options outstanding at March 1, 1997:

AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED
MARCH 1, 1997 AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SHARES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
OPTIONS AT MARCH 1, 1997
MARCH 1, 1997 (#) ($)(1)
SHARES ACQUIRED ON -------------------------- ---------------
NAME EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE
- --------------------------------- ------------------- ------------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Wayne P. Selness (2)............. -- -- 120,956 143,194 --
Wilfred C. Stroud................ -- -- 2,976 30,358 --
Jonathan W. Spatz (2)............ -- -- 9,023 32,177 --
Robert C. Widdess (2)............ -- -- 4,392 14,874 --
Joseph A. Imbrogulio (2)......... -- -- 4,297 13,903 --

NAME UNEXERCISABLE
- --------------------------------- -----------------
<S> <C>
Wayne P. Selness (2)............. --
Wilfred C. Stroud................ --
Jonathan W. Spatz (2)............ --
Robert C. Widdess (2)............ --
Joseph A. Imbrogulio (2)......... --
</TABLE>

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

(1) Amount represents the difference between the aggregated exercise prices of
unexercised options and a $3.88 market price on March 1, 1997.

17
<PAGE>
COMPENSATION COMMITTEE REPORT

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

At the time of this Compensation Committee Report, the Compensation
Committee of the Board of Directors was comprised of Messrs. Jelenko and
Hochberg. Mr. Klauer chaired the Compensation Committee until his resignation
from the Board of Directors in March 1997 and Mr. Jones was a member of the
Compensation Committee until his resignation in May 1997. Following Mr. Klauer's
resignation, Mr. Jelenko served as the chair of the Compensation Committee.
Through January 1997, Mr. Jelenko was affiliated with BT Capital, which is a
major stockholder of the Company and received certain registration rights from
the Company in January 1996. The Company has appointed Mssrs. Achabal and
Imbrogulio as new Compensation Committee members effective June 1, 1997, with
Mr. Achabal to serve as the chair of the Compensation Committee.

REPORT ON ANNUAL COMPENSATION OF EXECUTIVE OFFICERS

The report of the Compensation Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended (the
"Securities Act") or under the 1934 Act, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.

* * * * * *

The Compensation Committee's policy is to establish compensation levels for
the Chief Executive Officer (the "CEO") and the other executive officers which
reflect the Company's overall performance and the individual executive's
performance, responsibilities and contributions to the long-term growth and
profitability of the Company. The Compensation Committee's policy is to
determine the appropriate executive compensation levels which will enable the
Company to attract and retain qualified executives.

The Compensation Committee, with the assistance of the CEO, determines the
compensation of the executive officers based on its evaluation of the Company's
overall performance, primarily based on the Company's sales and earnings
performance compared with the Company's operating plan, as well as various
qualitative factors such as the Company's product and service quality, the
extent to which the executive officer has contributed to forming a strong
management team and other factors which the Compensation Committee believes are
indicative of the Company's ongoing ability to achieve its long-term sales
growth and profit objectives. With respect to each executive, the Compensation
Committee focuses on that individual executive's areas of responsibility and his
contribution toward achieving corporate objectives.

Total compensation of each executive officer of the Company consists of four
components: base salary, annual incentive in the form of a cash bonus, long-term
incentive in the form of equity based stock options and miscellaneous benefits
and perquisites. Each component is discussed below.

The principal component of the compensation of each executive officer is the
executive's base salary. In setting base salaries, the Compensation Committee
reviews the corporate and individual performance factors described above and the
practices of a primary peer group generally consisting of public growth-oriented
specialty retailers in comparable lines of trade, and a secondary peer group
generally consisting of public department store retailers. The comparison peer
groups are not identical to the peer group included in the performance
comparison graph under "Stock Performance Graph" below. The Compensation
Committee attempts to set the Company's base executive compensation levels at
levels that generally approximate 90% of the executive base compensation levels
at the companies in its primary peer group.

18
<PAGE>
On April 4, 1997, Mr. Selness resigned from his position as president, chief
executive officer and director of the Company. Mr. Stroud was elected President
on May 7, 1997, until a successor to Mr. Selness is named.

The base salary for Mr. Selness for the fiscal year ended March 1, 1997 was
$270,000. Pursuant to the terms of the severance package granted to Mr. Selness
upon his resignation in April 1997, Mr. Selness will receive an additional 18
months of his present salary. In addition, the Compensation Committee has agreed
to extend the expiration term of certain of Mr. Selness' options such that those
options which have an exercise price of less than $5.00 (a total of 133,000
options) will continue for a term of 18 months, whereas those options which have
an exercise price of greater than $5.00 (a total of 68,247 options) will,
pursuant to the terms of the Company's Equity Participation Plan, expire within
90 days of Mr. Selness' resignation.

Executive officers are eligible to receive annual incentives in the form of
cash bonuses. For the fiscal year ended March 1, 1997, these bonuses were
targeted at 20-50% of base salary and were based on the Company's financial
performance against certain pre-defined goals. In order to be more comparable
with its primary peer group and to put a greater proportion of its executive
officers' total compensation at risk, the Compensation Committee has determined
that annual bonuses will be based on achievement of pre-defined net income
levels, without regard to an executive's personal performance (although the
Compensation Committee can approve exceptions for outstanding individual
performances). Under this system, bonuses can be earned up to a maximum of 150%
of target bonus amounts. The target bonus amounts are generally based on the
practices of the Company's primary peer group. The Compensation Committee did
not award any incentive cash bonuses to executive officers in the fiscal year
ended March 1, 1997.

Another component of the total compensation of each executive officer of the
Company is long-term incentives in the form of equity based stock options. These
incentives are used to encourage the Company's management to maximize
stockholder value and utilize vesting periods to assist the Company in retaining
key employees. In general, the number of equity based stock options granted by
the Compensation Committee to each executive officer is based on an option grant
multiplier (which multiplier is, in part, based on the practices of the
Company's primary peer group) applied to each executive's base salary and an
estimate as to the fair market value of the underlying stock at the time of
grant of such options. The options granted to the former CEO for the fiscal year
ended March 1, 1997 were 32,250 (representing a multiplier of approximately 1).

In May 1997, the Compensation Committee determined that previous equity
based stock option awards did not properly align the compensation of key
executives with the interests of the Company's stockholders. In addition, in
view of the retention purposes of the Company's Equity Participation Plan, the
Compensation Committee was concerned about the option price of the options
granted to date in relation to the current market price of the Common Stock.
Therefore, to insure the retention of the existing key executives in order that
the Company's competitive strength would not be further compromised, on May 14,
1997, the Committee decided to reprice existing options for all employees to
more correctly reflect the fair market value of the Company's common stock.
Although the vesting period remains unchanged, repriced options will first
become exercisable on May 14, 1998.

The last component of total compensation is Company benefits and perquisites
generally consisting of car allowances, matching contributions to individual
executive's 401(k) Plans and customary life and health benefits. In addition,
Mr. Wilfred C. Stroud, the President and Chairman of the Board of Directors,
received split dollar life insurance benefits from the Company.

19
<PAGE>
During 1993, the Internal Revenue Code of 1986 was amended to include
Section 162(m) which denies a deduction to any publicly held corporation for
compensation paid to any "covered employee" (which is defined as the CEO and the
Company's other four most highly compensated officers, as of the end of a
taxable year) to the extent that the compensation exceeds $1 million in any
taxable year of the corporation beginning after 1993. Compensation which
constitutes "performance based compensation" is excludable in applying the $1
million limit. It is the Company's policy to qualify compensation paid to its
top executives for deductibility under Section 162(m) in order to maximize the
Company's income tax deductions.

By the Compensation Committee
Martin M. Jelenko, Chairman
Andrew S. Hochberg

20
<PAGE>
STOCK PERFORMANCE GRAPH

The Stock Performance Graph below shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the 1934 Act, except
to the extent the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.

Set forth below is a line graph comparing the total cumulative return of the
Company's Common Stock since the Company's initial public offering on October
12, 1994 to (a) a group of peer issuers with similar home retail businesses, and
(b) the Nasdaq Stock Market -- U.S. Index.

COMPARISON OF 28 MONTH CUMULATIVE TOTAL RETURN(1)
FOR STROUDS, INC., A PEER GROUP AND THE NASDAQ STOCK MARKET -- US INDEX

Research Total Return -- Data Summary

STRO

<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------------------------
10/12/94 2/25/95 3/02/96 3/01/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STROUNDS INC STRO 100 60 36 31
PEER GROUP PPEER1 100 95 100 120
NASDAQ STOCK MARKET--US INAS 100 104 146 176
</TABLE>

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

(1) Assumes $100 was invested on October 12, 1994 in stock or index and assumes
dividends are reinvested.

(2) The Peer Group companies consist of Bombay Co. Inc., Pier One Imports, Inc.,
Williams Sonoma, Inc., Bed Bath & Beyond, Inc., Three D Departments, Inc.,
Lechters, Inc., Goodguys, Inc. and Barnes & Noble, Inc.

21
<PAGE>
CERTAIN TRANSACTIONS

TRANSACTIONS RELATING TO CHF AND REFLECTIONS

In 1979, Mr. Stroud, current President and Chairman of the Company, invested
in Reflections Fine Bedding Attire, Inc. ("Reflections"), a manufacturer of
bedding merchandise and accessories. In recent years, Mr. Stroud has been a
director of Reflections and has beneficially owned (along with his spouse) 45%
of the stock of Reflections. The spouse of Mr. Selness, the former President and
former Chief Executive Officer of the Company, has also been a director of
Reflections, and Mr. Selness and his wife have beneficially owned 10% of the
stock of Reflections. In the fiscal year ended March 1, 1997, Reflections sold
approximately $1.0 million of merchandise to Strouds at prices Strouds believes
to be competitive with other suppliers of similar products. The sales to Strouds
during this period represented approximately 26.1% of Reflections' total sales.

The stockholders of Reflections had an outstanding debt obligation to a bank
lender in the amount of $675,000, the proceeds of which were loaned to
Reflections. In 1993, Mr. Stroud and his spouse assumed this note. Pursuant to
an understanding among the stockholders of Reflections, at such time as Mr. and
Mrs. Stroud are required to make payments on the note, the other stockholders
are required to reimburse them for their pro rata share (in accordance with
their stock ownership) of the note (the "Reflections Reimbursement Obligation").

On April 2, 1993, Reflections filed a voluntary Chapter 11 bankruptcy
proceeding. On June 1, 1993, CHF Industries, Inc. ("CHF"), an entity
unaffiliated with Reflections or Strouds, acquired substantially all of the
assets and business of Reflections (the "Reflections Business"). As part of the
acquisition, CHF required that Mr. Stroud enter into a Non-Competition and
Consulting Agreement with CHF, dated June 1, 1993 (the "CHF Agreement"). The CHF
Agreement provides generally that for a period of 10 years from the date of the
closing of the purchase of the Reflections Business by CHF, neither Mr. Stroud
nor any affiliate of Mr. Stroud's will directly or indirectly compete with the
Reflections Business nor solicit any employee or supplier of Reflections or CHF
to alter or terminate their business relationship. The CHF Agreement further
provides that Mr. Stroud will consult with and advise CHF on an as-needed basis
with respect to the sale and marketing by CHF of merchandise to Reflections
Business customers, including, but not limited to, Strouds. So long as Mr.
Stroud is employed by the Company, the CHF Agreement would prevent the Company
from competing with Reflections in the manufacture of bedding merchandise and
accessories.

As consideration for Mr. Stroud's entering into the CHF Agreement, CHF
agreed to pay Mr. Stroud an amount based on a percentage of gross sales of the
Reflections Business, up to a maximum total payment of $825,000. In the event
that total gross sales of the Reflections Business to Strouds equals or exceeds
$2.5 million (subject to Consumer Price Index ("CPI") adjustment) in any
contract year ending May 31, then CHF is required to pay Mr. Stroud an amount
equal to 4.58% of total gross sales of the Reflections Business to all
customers, including Strouds. In the event that total gross sales of the
Reflections Business to Strouds is less than the $2.5 million target (subject to
CPI adjustment), then the payment would be reduced in the proportion by which
sales to Strouds failed to meet the target. Payments to Mr. Stroud may not
exceed $275,000 for any May 31 contract year.

The CHF Agreement was disclosed to the Board of Directors of Strouds, and
all of the directors (except for Mr. Stroud, who abstained) approved the terms
of the CHF Agreement and the payments by CHF to Mr. Stroud.

22
<PAGE>
All purchases by Strouds from Reflections and CHF have represented
independent decisions of the buying staff of Strouds based upon the quality and
design of product, salability, pricing, and the ability of CHF to meet a
satisfactory delivery schedule. The Company believes that all purchases from
Reflections and CHF have been in appropriate amounts and on terms comparable to
those that could have been obtained from other vendors. The Board of Directors
of the Company has adopted a policy of reviewing the Company's purchases from
CHF to determine whether such purchases have been in appropriate amounts and on
terms comparable to those that could have been obtained from other vendors. In
fiscal year ended March 1, 1997, purchases by Strouds from Reflections and CHF
equaled 0.7% of the Company's total cost of sales, including buying and
occupancy.

During the contract year ended May 31, 1996, total sales of the Reflections
Business were $4.2 million, of which $1.3 million were sales to Strouds.
Pursuant to the formula described above, Mr. Stroud received a payment of
$103,000 from CHF with respect to that contract year. To the extent that Mr.
Stroud receives payments under the CHF Agreement, the Reflections Reimbursement
Obligation will be reduced. As of May 31, 1996, a total of $481,000 (out of a
maximum of $825,000) had been paid to Mr. Stroud by CHF.

REGISTRATION RIGHTS

In November 1995, the Board of Directors adopted a Rights Agreement pursuant
to which it declared a dividend of one preferred stock purchase right (the
"Rights") for each share of Common Stock outstanding at the close of business on
November 30, 1995. Each Right will entitle the registered holder thereof, after
the Rights become exercisable and until November 17, 2005 (or the earlier
redemption, exchange or termination of the Rights), to purchase from the Company
one one-hundredth of a share of Series B Junior Participating Preferred Stock,
par value $0.0001 per share, at a price of $30.00 per one one-hundredth of a
Preferred Share, subject to certain anti-dilution adjustments.

In connection with the adoption of the Rights Agreement, and in order to
resolve an issue as to whether a previous registration rights agreement was
still in effect with BT Capital (the beneficial owner of approximately 27.5% of
the Company's Common Stock), the Company agreed to provide BT Capital with
certain demand and piggyback registration rights; PROVIDED, HOWEVER, that the
costs associated with exercising any such registration rights would be borne by
BT Capital.

CONFLICT OF INTEREST POLICY

In May 1995, the Board of Directors adopted a conflict of interest policy
which generally provides that no employee, officer or director of the Company
(individually and collectively, a "Company Person") should have any personal
interest that is incompatible with the loyalty and responsibility owed to the
Company. Pursuant to such policy, all Company Persons must discharge their
responsibility solely on the basis of what is in the best interest of the
Company and independent of personal considerations or relationships, and all
Company Persons are expected to adhere to both the letter and spirit of the
Company's conflict of interest policy.

OTHER RELATIONSHIPS

Mr. Bemis is a partner in the law firm of Millar, Hodges and Bemis which has
provided legal services to the Company since the Company's formation and
continues to provide such services on an ongoing basis to the Company. Mr.
Bemis' firm receives customary legal fees for such services.

23
<PAGE>
OTHER INFORMATION

CERTAIN STOCKHOLDERS

The table below sets forth certain information regarding the beneficial
owners of more than 5% of the Company's Common Stock as of March 31, 1997, other
than directors and executive officers.

<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED
------------------------------------
NUMBER OF SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PERCENT OF CLASS
- ------------------------------------------------------------------------------ ----------------- -----------------
<S> <C> <C>
BT Capital Partners, Inc. ("BT Capital") 2,347,800(1) 27.5%
130 Liberty Street
New York, New York 10006

West Highland Capital, Inc. ("WHC") 680,000(2) 8.0%
300 Drake's Landing Road, Suite 290
Greenbrace, CA 94904

J.R. Zone, as Trustee of the 539,779(3) 6.3%
J.R. Zone 1983 Trust Agreement
20700 Ventura Boulevard, #335
Woodland Hills, CA 91364

Dimensional Fund Advisors Inc. ("DFAI") 529,200(4) 6.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401

Rockefeller & Co., Inc. ("Rockefeller") 640,800(5) 7.5%
30 Rockefeller Plaza
New York, New York 10112

U.S. Bancorp ("Bancorp") 438,000(6) 5.1%
111 S.W. Fifth Avenue
Portland, OR 97204
</TABLE>

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

(1) Information based solely on Amendment No. 4 dated as of February 14, 1997 to
the Schedule 13G dated February 14, 1995 filed by Bankers Trust New York
Corporation and its indirect wholly-owned subsidiary, BT Capital, with the
Securities and Exchange Commission. Beneficial ownership includes 212,850
shares of Common Stock subject to warrants that are presently exercisable.

(2) Information based solely on the Schedule 13G dated February 14, 1995 filed
by WHC with the Securities and Exchange Commission. Lang H. Gerhard and West
Highland Partners, L.P. may be deemed to beneficially own certain of the
shares beneficially owned by WHC because of commonality of voting and/or
investment power.

(3) Information based solely on the Schedule 13G dated February 1, 1995 filed by
J.R. Zone with the Securities and Exchange Commission.

(4) Information based solely on Amendment No. 1 dated February 5, 1997 to the
Schedule 13G dated February 7, 1996 filed by DFAI with the Securities and
Exchange Commission. DFAI, a registered investment advisor, is deemed to
have beneficial ownership of 529,200 shares of the Common Stock as of
December 31, 1995, all of which shares are held in portfolios of DFA
Investment Dimensions

24
<PAGE>
Group, Inc., a registered open-end investment company, or in series of the
DFA Investment Trust Company, a Delaware business trust, or the DFA Group
Trust and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, all of which DFAI serves as investment manager. DFAI
disclaims beneficial ownership of all such shares.

(5) Information based solely on Amendment No. 1 dated February 3, 1997 to the
Schedule 13G dated February 9, 1996 filed by Rockefeller with the Securities
and Exchange Commission. Rockefeller filed the Schedule 13G on behalf of
certain clients for which it is the investment manager (collectively, the
"R&Co. clients"). Each of these R&Co. clients, individually, owns less than
5% of the Common Stock. Each of these R&Co. clients has executed investment
management agreements granting Rockefeller the right to exercise full
discretion with respect to all matters relating to the Common Stock held by
them (including sole voting and dispositive power). Thus, while Rockefeller
is for purposes of this filing regarded as the beneficial owner of the
Common Stock held by each of the R&Co. clients, each of the R&Co. clients
has the sole right to receive dividends from, and the proceeds from the sale
of, the shares of the Common Stock owned of record by each of them.

(6) Information based solely on the Schedule 13G dated February 14, 1997 filed
by Bancorp with the Securities and Exchange Commission. Qualivest Capital
Management, Inc., a registered investment advisor and a wholly-owned
subsidiary of United States National Bank of Oregon, a wholly-owned
subsidiary of Bancorp, is deemed to have beneficial ownership of 235,300
shares, or 2.8% of the Common Stock. The remaining 202,700 shares or 2.3% of
the Common Stock are deemed to be beneficially held by the Trust Group of
Bancorp.

25
<PAGE>
OTHER MATTERS AT THE MEETING

The Board of Directors does not know of any matters to be presented at the
Annual Meeting of Stockholders other than those mentioned in this Proxy
Statement. If any other matters are properly brought before the Annual Meeting
of Stockholders, it is intended that the proxies will be voted in accordance
with the best judgment of the person or persons voting such proxies.

COST OF SOLICITATION

The expense of soliciting proxies and the cost of preparing, assembling and
mailing material in connection with the solicitation of proxies will be paid by
the Company. In addition to the use of mails, certain directors, officers or
employees of the Company and its subsidiaries, who receive no compensation for
their services other than their regular salaries, may solicit and tabulate
proxies. The Company has retained D.F. King & Co., Inc. to assist in the
solicitation of proxies with respect to shares of Strouds Common Stock held of
record by brokers, nominees and institutions. The estimated cost of the services
of D.F. King & Co., Inc. is $3,500, plus expenses.

STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING

Any stockholder who meets the requirements of the proxy rules under the 1934
Act may submit to the Board of Directors proposals to be considered for
submission to the stockholders at the 1998 Annual Meeting of Stockholders. Any
such proposal must comply with the requirements of Rule 14a-8 under the 1934 Act
and be submitted in writing by notice delivered or mailed by first-class United
States mail, postage prepaid, to the Corporate Secretary, Strouds, Inc., 780
South Nogales Street, City of Industry, California 91748, and must be received
no later than February 6, 1998. Any such notice shall set forth: (a) the name
and address of the stockholder and the text of the proposal to be introduced;
(b) the number of shares of stock held of record, owned beneficially and
represented by proxy by such stockholder as of the date of such notice; and (c)
a representation that the stockholder intends to appear in person or by proxy at
the meeting to introduce the proposal specified in the notice. The chairman of
the meeting may refuse to acknowledge the introduction of any stockholder
proposal not made in compliance with the foregoing procedures. In addition, the
Company's Bylaws provide for notice procedures to recommend a person for
nomination as a director and to propose business to be considered by
stockholders at a meeting.

By Order of the Board of Directors

/s/ Wilfred C. Stroud

Wilfred C. Stroud
PRESIDENT AND CHAIRMAN OF THE BOARD

City of Industry, California
June 6, 1997

26
<PAGE>
P R O X Y STROUDS, INC.
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JULY 8, 1997

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Wilfred C. Stroud or Douglas C. Felderman,
and each of them, his or her attorneys and agents, with full power of
substitution to vote as proxy for the undersigned, as herein stated, at the
Annual Meeting of Stockholders of Strouds, Inc., to be held at Industry Hills
Sheraton, One Industry Hills Parkway, City of Industry, California, on July 8,
1997 or at any adjournment or postponement thereof, according to the number of
votes the undersigned would be entitled to vote if personally present on the
proposals set forth below (and as more particularly set forth in the Notice of
Annual Meeting enclosed herewith) and in accordance with their discretion on any
other matters that may properly come before the Annual Meeting or any
adjournment thereof.

PLEASE MARK YOUR CHOICE LIKE THIS / / IN DARK INK AND SIGN AND DATE ON THE
REVERSE SIDE

(1) ELECTION OF SIX DIRECTORS / / Vote FOR ALL (EXCEPT AS MARKED TO THE CONTRARY
BELOW) / / WITHHELD for ALL

Wilfred C. Stroud Jonathan W. Spatz Joseph A. Imbrogulio Larry R.
Bemis Dale D. Achabal Marco F. Weiss

(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)

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

(2) APPROVE CERTAIN AMENDMENTS TO THE COMPANY'S AMENDED AND RESTATED 1994 EQUITY
PARTICIPATION PLAN.

/ / FOR / / AGAINST / / ABSTAIN

(3) RATIFY THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS.

/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement dated June 6, 1997.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD IN THE ENCLOSED ENVELOPE.
Dated: ______________________, 1997
___________________________________
(Signature)
___________________________________
Signature if held jointly

Please sign exactly as your name
appears. Joint owners should each
sign. Trustees and others acting in
a representative capacity should
indicate the capacity in which they
sign.
<PAGE>

This is not being sent to security holders but is being provided to the
Commission pursuant to Instruction 3 of Item 10 to Schedule 14A of the
Securities Exchange Act of 1934 as amended.

FIRST AMENDMENT TO
THE AMENDED AND RESTATED 1994 EQUITY PARTICIPATION PLAN OF STROUDS, INC.

WHEREAS, Strouds, Inc. (hereinafter the "Company"), a Delaware
corporation, maintains the Amended and Restated 1994 Equity Participation Plan
(the "Plan") of the Company, effective as of September 1, 1994; (hereinafter the
"Plan"); and

WHEREAS, pursuant to Section 10.2 of the Plan, the Board of Directors
of the Company (hereinafter the "Board") may amend the Plan from time to time.

NOW THEREFORE, BE IT RESOLVED, that the Plan be amended as follows,
effective May 14, 1997.

1. Section 1.13 shall be amended and restated in its entirety as follows:

1.13 FAIR MARKET VALUE. "Fair Market Value" of a share of Common
Stock as of a given date shall be (i) the closing price of a share of
Common Stock on the principal exchange on which shares of Common Stock are
then trading, on the date of grant, or (ii) if Common Stock is not traded
on an exchange, the mean between the closing representative bid and asked
prices for the Common Stock on such date as reported by NASDAQ or, if
NASDAQ is not then in existence, by its successor quotation system; or
(iii) if Common Stock is not publicly traded, the Fair Market Value of a
share of Common Stock as established by the Committee (or the Board, in the
case of Options granted to Independent Directors) acting in good faith.

2. Section 2.1(a) shall be amended and restated in its entirety as
follows:

2.1(a) The shares of stock subject to Options, awards of Restricted
Stock, Performance Awards, Dividend Equivalents, awards of Deferred Stock,
Stock Payments or Stock Appreciation Rights shall be Common Stock,
initially shares of the Company's Common Stock, par value $.0001 per share.
The aggregate number of shares which may be issued upon exercise of such
options or rights or upon any such awards under the Plan shall not exceed
one million one hundred twenty-five thousand (1,125,000). The shares of
Common Stock issuable upon exercise of such options or rights or upon any
such awards may be either previously authorized but unissued shares or
treasury shares.

3. Section 3.4(d) shall be amended and restated in its entirety as
follows:

3.4 During the term of the Plan, each person who is an Independent
Director as of the date of the initial public offering of Common Stock
automatically shall be granted an option to purchase ten thousand (10,000)
shares of Common Stock (subject

<PAGE>

to adjustment as provided in Section 10.3) on the date of such initial
public offering. When a person is initially elected to the Board following
the date of the initial public offering of Common Stock and is then an
Independent Director, each such new Independent Director automatically
shall (i) be granted an Option to purchase ten thousand (10,000) shares of
Common Stock (subject to adjustment as provided in Section 10.3) on the
date of his or her election to the Board, and (ii) an Option to purchase
2,000 shares of Common Stock (subject to adjustment as provided in Section
10.3) on the date of each annual meeting of stockholders after such initial
election at which the Independent Director is re-elected to the Board.
Members of the Board who are Employees who subsequently retire from the
Company and remain on the Board will not receive an Option grant pursuant
to Section 3.4(d)(i) of the preceding sentence, but to the extent that they
are otherwise eligible, will receive, after retirement from the Company,
Options as described in clause (ii) of the preceding sentence. All of the
foregoing Option grants authorized by this Section 3.4(d) are subject to
stockholder approval of the Plan.

* * * * *

I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of Strouds, Inc. on May 14, 1997.

By /s/ Jonathan W. Spatz
-----------------------------------
Jonathan W. Spatz
SECRETARY