STROUDS INC, DEFS14A, 1999-12-13

STROUDS INC
DEFS14A, 1999-12-13
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<PAGE>

As filed with the Securities and Exchange Commission on December 13, 1999

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

<TABLE>
<S> <C>
Filed by the Registrant /X/
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 Section 240.14a-11(c) or
Section
240.14a-12
</TABLE>

<TABLE>
<S> <C>
STROUDS, INC.
- ------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- ------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>

Payment of Filing Fee (Check the appropriate box):

<TABLE>
<S> <C> <C>
/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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</TABLE>
<PAGE>
STROUDS, INC.
780 SOUTH NOGALES STREET
CITY OF INDUSTRY, CALIFORNIA 91748

December 15, 1999

To Our Stockholders:

You are cordially invited to attend the Special Meeting of Stockholders (the
"Special Meeting") of Strouds, Inc. (the "Company") which will be held on
Wednesday, January 26, 2000, at 10:00 a.m., local time, at The Westin Los
Angeles Airport, 5400 West Century Boulevard, Los Angeles, California. All
stockholders of record at the close of business on December 10, 1999 are
entitled to receive notice of and to vote at the Special Meeting or any
adjournment or postponement thereof.

The Special Meeting will be held to: (a) approve certain amendments to the
Amended and Restated 1994 Equity Participation Plan of Strouds, Inc., as amended
(the "1994 Plan, as Amended") to, among other things, (i) increase the number of
shares of the Company's Common Stock available for issuance thereunder from
1,680,000 to 3,680,000 and (ii) increase the maximum number of shares that may
be granted to any individual in any calendar year from 500,000 to 1,000,000, and
restate the 1994 Plan, as Amended as The Second Amended and Restated 1994 Equity
Participation Plan, and (b) transact such other business as may properly be
brought before the Special Meeting or any adjournment or postponement thereof.

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

Sincerely,

[SIGNATURE]

Charles R. Chinni
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
STROUDS, INC.
780 SOUTH NOGALES STREET
CITY OF INDUSTRY, CALIFORNIA 91748

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

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 26, 2000

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

The Special Meeting of Stockholders (the "Special Meeting") of
Strouds, Inc. (the "Company") will be held on Wednesday, January 26, 2000, at
10:00 a.m., local time, at The Westin Los Angeles Airport, 5400 West Century
Boulevard, Los Angeles, California to:

1. approve certain amendments to the Amended and Restated 1994 Equity
Participation Plan of Strouds, Inc., as amended (the "1994 Plan, as
Amended") to, among other things, (i) increase the number of shares of
the Company's Common Stock available for issuance thereunder from
1,680,000 to 3,680,000 and (ii) increase the maximum number of shares
that may be granted to any individual in any calendar year from 500,000
to 1,000,000, and restate the 1994 Plan, as Amended as The Second Amended
and Restated 1994 Equity Participation Plan; and

2. transact such other business as may properly be brought before the
Special Meeting or any adjournment or postponement thereof.

Stockholders of record at the close of business on December 10, 1999 are
entitled to receive notice of and to vote at the Special Meeting or any
adjournment or postponement thereof. The list of stockholders will be available
for examination for the ten days prior to the Special Meeting at Strouds, Inc.,
780 South Nogales Street, City of Industry, California.

THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY,
WHICH RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF CERTAIN AMENDMENTS
TO THE 1994 PLAN, AS AMENDED, AND THE RESTATEMENT OF THE 1994 PLAN, AS AMENDED
AS THE SECOND AMENDED AND RESTATED 1994 EQUITY PARTICIPATION PLAN. Please refer
to the attached proxy statement, which forms a part of this notice and is
incorporated herein by reference, for further information with respect to the
business to be transacted at the Special Meeting.

All stockholders are cordially invited to attend the Special Meeting in
person. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON,
HOWEVER, PLEASE COMPLETE THE ACCOMPANYING PROXY AND RETURN IT IN THE ENCLOSED
ADDRESSED ENVELOPE. If you attend the Special Meeting, you may vote in person
even if you have sent in your proxy card.

By Order of the Board of Directors

[SIGNATURE]

Charles R. Chinni
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER

City of Industry, California
December 15, 1999

<PAGE>
STROUDS, INC.

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

PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 26, 2000

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

This proxy statement (the "Proxy Statement") is furnished in connection with
the solicitation of proxies by the Board of Directors of Strouds, Inc.
("Strouds" or the "Company") from the holders of its outstanding shares of
common stock, par value $0.0001 per share (the "Common Stock"), for use at the
Special Meeting of Stockholders to be held on Wednesday, January 26, 2000 (the
"Special Meeting") to:

2. transact such other business as may properly be brought before the
Special Meeting or any adjournment or postponement thereof.

The Company's principal executive offices are located at 780 South Nogales
Street, City of Industry, California 91748, telephone (626) 912-2866. A copy of
this Proxy Statement and accompanying proxy card will be first mailed to
stockholders on or about December 15, 1999. The Company defines its fiscal year
as the period in which most of the business activity occurs (e.g., the year
ending February 27, 1999 is referred to as fiscal 1998).

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND IF GIVEN
OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED AND
THE DELIVERY OF THIS PROXY STATEMENT SHALL, UNDER NO CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.

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., 77 Water Street, New
York, New York 10005, telephone (212) 269-5550, to assist in the solicitation of
proxies with respect to the shares of Common Stock held of record by brokers,
nominees and institutions. The estimated cost of the services of D.F. King &
Co., Inc. is $3,000, plus expenses.

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
Special Meeting. Concerning the adoption of the Second Amended and Restated 1994
Plan, by checking the appropriate box on
<PAGE>
your proxy card 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 (a) completing and returning the enclosed
proxy card prior to the Special Meeting, (b) voting in person at the Special
Meeting, or (c) submitting a signed proxy card at the Special Meeting.

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

You may revoke your proxy at any time before it is actually voted at the
Special Meeting by (a) delivering written notice of revocation to the Secretary
of the Company at 780 South Nogales Street, City of Industry, California, 91748,
(b) submitting a later dated proxy, or (c) attending the Special Meeting and
voting in person. Attendance at the Special Meeting will not, by itself,
constitute revocation of the proxy. You may also be represented by another
person present at the Special 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 Special Meeting will be voted as indicated. Unless otherwise specified on
the proxy, the shares represented by a signed proxy card will be voted FOR item
1 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 Special 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 in which case such
abstention has no effect) and broker non-votes will have no effect.

The presence at the Special Meeting, in person or by proxy, of a majority of
the shares of Common Stock issued and outstanding on December 10, 1999, will
constitute a quorum.

Votes cast at the Special Meeting will be tabulated by the persons appointed
by the Company to act as inspectors of election for the Special Meeting.

SHARES ENTITLED TO VOTE AND REQUIRED VOTE

Stockholders of record at the close of business on December 10, 1999 are
entitled to vote at the Special Meeting. At that date, 7,080,500 shares of
Common Stock were outstanding. Each share of Common Stock is entitled to one
vote. In all matters, the affirmative vote of a majority of the shares of Common
Stock that are represented in person or represented by proxy at the Special
Meeting and entitled to vote is required to approve each matter.

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

The date of this Proxy Statement is December 15, 1999.

2
<PAGE>
PROPOSAL NO. 1
APPROVAL OF THE SECOND AMENDED AND RESTATED 1994 PLAN

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. At the Annual Meetings on July 8, 1997
and July 1, 1998, the stockholders approved certain amendments to the 1994 Plan.
The 1994 Plan, as so amended is referred to herein as the "1994 Plan, as
Amended."

On October 20, 1999, the Compensation Committee recommended, and the Board
of Directors unanimously adopted, subject to stockholder approval, certain
amendments to the 1994 Plan, as Amended to, among other things, (i) increase the
number of shares of the Company's Common Stock ("Common Stock") available for
issuance thereunder from 1,680,000 to 3,680,000, and (ii) increase the maximum
number of shares that may be granted to any individual in any calendar year from
500,000 to 1,000,000, and restate the 1994 Plan, as Amended, as The Second
Amended and Restated 1994 Equity Participation Plan (the "Second Amended and
Restated 1994 Plan").

SUMMARY OF PROPOSED CHANGES

The 1994 Plan, as Amended currently permits options to be granted covering
up to 1,680,000 shares of Common Stock. The Board proposes to amend the 1994
Plan, as Amended to provide for an increase in the number of shares of Common
Stock reserved for issuance thereunder from 1,680,000 to 3,680,000. As of
December 1, 1999, approximately 83% of the shares of Common Stock reserved for
issuance under the 1994 Plan, as Amended were subject to outstanding options
leaving approximately 273,476 shares of Common Stock reserved for issuance under
the 1994 Plan, as Amended. The Board believes that in order to continue to
provide an incentive to secure and retain key employees, directors and
consultants of outstanding ability and to provide added incentives to those
employees, directors and consultants presently working at the Company,
additional shares should be made available under the Second Amended and Restated
1994 Plan. The Board believes that the increase in the number of shares of
Common Stock available for issuance as provided in the Second Amended and
Restated 1994 Plan will provide the Compensation Committee with greater
flexibility in the administration of the Second Amended and Restated 1994 Plan
and is appropriate for accommodating any new employees, directors and
consultants who would be subject to the Second Amended and Restated 1994 Plan.

The 1994 Plan, as Amended currently limits the number of shares subject to
options which may be granted to any individual in any one year at 500,000, the
("Award Limit"). The Board proposes to amend the 1994 Plan, as Amended to allow
an increase in the options subject to the Award Limit from 500,000 shares to
1,000,000 shares. The Board believes that the increase in the Award Limit will
provide the Compensation Committee with greater flexibility in the
administration of the Second Amended and Restated 1994 Plan.

The principal features of the Second Amended and Restated 1994 Plan are
summarized below, but the summary is qualified in its entirety by reference to
the Second Amended and Restated 1994 Plan. Copies of the Second Amended and
Restated 1994 Plan will be available at the Special Meeting and may also be
obtained by making written request of the Company's Secretary.

THE SECOND AMENDED AND RESTATED PLAN

An aggregate of 3,680,000 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
Second Amended and Restated 1994 Plan. However, as of May 20, 1998, no grants of
any SARs, restricted stock options,

3
<PAGE>

performance awards, deferred stock or stock payments may be made under the
Second Amended and Restated 1994 Plan. The maximum number of shares which may be
subject to options or SARs granted under the Second Amended and Restated 1994
Plan to any individual in any calendar year cannot exceed 1,000,000 (the "Award
Limit"). The Compensation Committee administers the Second Amended and Restated
1994 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 Second Amended and Restated 1994
Plan which apply to key employees, officers and consultants of the Company and
directors who are employed by the Company. The special provisions of the Second
Amended and Restated 1994 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 below.

The Second Amended and Restated 1994 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 or a certificate executed by an
authorized officer of the Company. Non-qualified stock options ("NQSO") 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 of
the Company or any of its subsidiaries, 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.

Under the Second Amended and Restated 1994 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 a non-employee
director after such date and each non-employee director who is re-elected to the
Board shall receive a subsequent option to purchase 10,000 shares of Common
Stock at the time of such re-election. The Second Amended and Restated 1994 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 Second Amended and Restated 1994 Plan with respect to options granted to
non-employee directors.

The Second Amended and Restated 1994 Plan does not allow for the repricing
of any stock options after May 20, 1998.

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 as determined by the Compensation Committee.

No option or other right to acquire Common Stock granted under the Second
Amended and Restated 1994 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 Second Amended and Restated 1994 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

4
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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 Second Amended and Restated 1994 Plan to increase the
number of shares as to which options 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 Second
Amended and Restated 1994 Plan may be amended, modified, suspended or terminated
by the Compensation Committee, unless such action would otherwise require
stockholder approval under the Second Amended and Restated 1994 Plan or as a
matter of applicable law, regulation or rule. Amendments of the Second Amended
and Restated 1994 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.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS FOR THE SECOND AMENDED AND RESTATED
1994 PLAN

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 Second Amended and Restated 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 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 Second Amended and Restated 1994 Plan will be provided with
detailed information regarding the tax consequences relating to the various
types of awards and grants under the Second Amended and Restated 1994 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 in 1994 and thereafter) 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 taxable year of the Company. However, under
Section 162(m), the deduction limit does not apply to certain "performance-based
compensation" which is paid based upon the attainment of objective financial
performance goals which are established by an independent compensation committee
pursuant to business criteria, the material terms of which are adequately
disclosed to, and approved by, stockholders of the Company and which meets
certain other requirements. 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 Second Amended and Restated 1994 Plan
will not be subject to the $1 million limitation if these conditions are
satisfied. Rights or awards granted under the Second Amended and Restated 1994
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 the attainment of preestablished
objective performance goals, the material terms of which are adequately
disclosed to, and approved by, the stockholders of the Company.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE SECOND
AMENDED AND RESTATED 1994 PLAN AS SET FORTH IN PROPOSAL NO. 1

5
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The Summary Compensation Table below sets forth certain compensation
information concerning the Company's Chief Executive Officer, its former Chief
Executive Officer and its other most highly compensated current executive
officer (the "Named Executive Officers") for services rendered in all capacities
to the Company during the fiscal year ended February 27, 1999:

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------- SHARES OTHER
FISCAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(1)
- --------------------------- -------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Charles R. Chinni (2)......................... 1998 387,692 175,000 (3) 100,000 65,909 (4)
Chairman of the Board of Directors, 1997 222,116 -- 300,000 29,642 (5)
President, Chief Executive Officer,
and Director

Wilfred C. Stroud............................. 1998 204,000 -- 12,500 9,100 (7)
Founder, Chairman Emeritus and 1997 204,000 -- 45,834 (6) 29,246 (7)
Director 1996 204,000 -- 12,500 37,293 (7)

Douglas C. Felderman (11)..................... 1998 183,077 -- 45,000 --
Senior Vice President--Finance, 1997 138,076 -- 55,000 (8) 508 (9)
Chief Financial Officer and Secretary 1996 110,000 12,500 (10) 3,000 127 (9)
</TABLE>

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

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

(2) Mr. Chinni joined the Company to serve as its President and Chief Executive
Officer in July 1997. The salary reported for fiscal year 1997 reflects
compensation received for a partial year.

(3) Reflects bonus received by Mr. Chinni during fiscal year ended February 27,
1999 for services rendered during fiscal year ended February 28, 1998.

(4) Includes $58,909 relating to housing and travel expenses and $7,000
representing an automobile allowance paid to Mr. Chinni by the Company.

(5) Includes $25,200 relating to relocation and travel expenses and $4,442
representing an automobile allowance paid to Mr. Chinni by the Company.

(6) Of these options, only 12,500 represent new grants in fiscal 1997 and 33,334
represent the options that were repriced in May 1997.

(7) The Company contributed $235 and $2,391 to the Company's 401(k) plan on
behalf of Mr. Stroud for the fiscal years ended February 28, 1998 and
March 1, 1997, respectively. 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 1997 and 1996 are $29,011 and
$34,902, 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. Mr. Stroud's retirement was effective February 28, 1999 and the value
of the premiums paid in 1998 equalled $9,100.

(8) Of these options, only 45,550 represent new grants in fiscal 1997 and 9,450
represent the options that were repriced in May 1997.

(9) Represents Company matching contributions to the Company's 401(k) plan on
behalf of Mr. Felderman.

(10) Reflects bonus received by Mr. Felderman during fiscal year ended March 2,
1996 for services rendered during fiscal year ended February 25, 1995.

(11) Mr. Felderman resigned as an officer of the Company, effective May 27,
1999.

6
<PAGE>
OPTION GRANTS DURING FISCAL YEAR ENDED FEBRUARY 27, 1999

The following table sets forth certain information regarding grants of stock
options made to the Named Executive Officers during the fiscal year ended
February 27, 1999, including information as to the potential realizable value of
such options at assumed annual rates of stock price appreciation for the ten
year option terms:

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SHARES PERCENT OF STOCK PRICE
UNDERLYING OF TOTAL OPTIONS APPRECIATION FOR OPTION
OPTIONS GRANTED TO EMPLOYEES EXERCISE TERM(1)
GRANTED IN FISCAL YEAR ENDED PRICE PER EXPIRATION ---------------------------
NAME (#) FEBRUARY 27, 1999 SHARE DATE 5% ($) 10% ($)
- --------------------- ---------- -------------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Chinni.... 100,000(2) 26.8% $2.88 04-28-08 $ 180,807 $ 458,201

Wilfred C. Stroud.... 12,500 3.4% $3.25 04-24-08 25,549 64,746

Douglas C.
Felderman........... 45,000 12.1% $3.25 04-24-08 91,976 233,085

All Optionees........ 373,100 100.0% 1.44-3.25 03-19-08 634,657 1,608,346
01-13-09

All Stockholders
(3)................. N/A N/A N/A N/A 15,527,060 39,348,618

All Optionees as a
percent of All
Stockholders Gain... N/A N/A N/A N/A 4.1% 4.1%
</TABLE>

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

(1) The dollar amounts under these columns are the result of calculations at
five percent and ten 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) Since the end of the fiscal year 1998 through the date of this proxy
statement, Mr. Chinni has been granted options to purchase 325,000 shares of
the Company's Common Stock.

(3) These amounts represent the appreciated value which common stockholders
would receive at the hypothetical five and ten percent rates based on the
market value of Common Stock outstanding at or near the option grant dates.

AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED FEBRUARY 27, 1999 AND FISCAL
YEAR END OPTION VALUES

The following table sets forth certain information regarding options
exercised during fiscal year 1998 and options outstanding at February 27, 1999
for the Named Executive Officers:

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SHARES UNEXERCISED IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
OPTIONS AT FEBRUARY 27, 1999 ($)(1)
FEBRUARY 27, 1999 (#) ---------------------------
SHARES ACQUIRED ---------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Chinni.... -- -- 75,000 325,000 $4,725 $14,175
Wilfred C. Stroud.... -- -- 16,428 41,906 3,088 5,528
Douglas C.
Felderman........... -- -- 14,180 85,820 1,742 3,978
</TABLE>

- --------------------------
(1) Amount represents the difference between the aggregated exercise prices of
unexercised options and a closing price of $1.94 per share of the Common
Stock as reported on the Nasdaq Stock Market on February 26, 1999, the last
trading day in fiscal year 1998.

7
<PAGE>
EMPLOYMENT AGREEMENTS

On July 7, 1997, Mr. Chinni and the Company entered into an employment
agreement (the "1997 Agreement"). Subsequently, on May 20, 1998, the Company and
Mr. Chinni amended and restated the original 1997 Agreement (the "1998
Agreement"). On October 20, 1999 (the "Commencement Date"), the Company and
Mr. Chinni further amended and restated the 1998 Agreement (the "1999
Agreement"), which expires on February 28, 2003. Pursuant to the terms of the
1999 Agreement, Mr. Chinni shall serve as the Company's Chairman of the Board of
Directors, President and Chief Executive Officer and the Company will pay
Mr. Chinni an annual base salary equal to $600,000 effective as of July 1, 1999,
provided, that, the Company will reevaluate Mr. Chinni's salary on each
anniversary of the Commencement Date. At the end of fiscal year 1999, subject to
pre-determined improvements of the Company's financial performance, Mr. Chinni
is eligible to receive certain specified cash bonus amounts. Such amounts shall
not exceed $212,500 in cash. Effective as of March 1, 2000, the Compensation
Committee will establish certain performance objectives and will provide for
payment of a cash bonus to Mr. Chinni for each fiscal year in an amount at least
50% of his then current base annual salary if such performance objectives for
Mr. Chinni are achieved. The 1999 Agreement further provides that as of the date
of employment, Mr. Chinni was granted options for the purchase of (i) 100,000
shares of Common Stock at an exercise price equal to the fair market value on
the date of grant and (ii) an additional 900,000 shares of Common Stock at the
fair market value as of the date the Company's stockholders approve the Second
Amended and Restated 1994 Plan. Additionally, the 1999 Agreement provides for
the Company to reimburse Mr. Chinni for certain travel, out-of-pocket business
and attorney expenses and to provide Mr. Chinni with medical, hospital,
surgical, disability, accidental death, travel and/or life insurance coverage.

The Company is entitled to terminate Mr. Chinni's employment upon the
expiration of the term of the 1999 Agreement, death, disability, "for cause"
(e.g., neglect of duties, breach of covenants, failure to correct employment
deficiency, fraud, embezzlement, or acceptance of bribe or kickback), an event
of bankruptcy, reorganization or similar circumstances, rejection by the
stockholders of the Second Amended and Restated 1994 Plan or "without cause"
(reasons other than for his death, disability, or for cause). Mr. Chinni may
terminate his employment with the Company for a reason other than a "good
reason" upon 60 days' written notice and at any time for a "good reason". "Good
reason" includes the occurrence of any of the following circumstances: (i) the
assignment to Mr. Chinni of any duties which are materially inconsistent with
his position in the Company held on the Commencement Date or any other action
that results in a material diminution in his position, duties or
responsibilities, (ii) the relocation of the Company's offices at which
Mr. Chinni is principally employed on the Commencement Date to a location
outside the greater Los Angeles metropolitan area; (iii) the Company's material
breach of the provisions of the 1999 Agreement; (iv) the Company's reduction of
Mr. Chinni's base salary, except for across-the-board salary reductions;
(v) the removal of Mr. Chinni from the position of President or Chief Executive
Officer; (vi) the failure of Mr. Chinni to be elected to the Board, as Chairman;
or (vii) the removal of Mr. Chinni from the position of Chairman of the Board
once he is elected to such office. In the event of a (i) termination by the
Company due to the expiration of the term of the 1999 Agreement or "without
cause" or (ii) termination by Mr. Chinni for "good reason", Mr. Chinni is
entitled to a severance payment of his base salary and targeted bonus in effect
at the time of termination for the remaining term of the 1999 Agreement or for
two years, whichever is greater.

The 1999 Agreement includes provisions restricting Mr. Chinni from
competing, directly or indirectly, with the Company during employment and for
two years after the termination of employment.

On August 4, 1999, the Company entered into a letter agreement (the "Letter
Agreement"), pending the completion of an employment contract, with Robert M.
Menar pursuant to which the Company employed Mr. Menar as its Chief Operating
Officer for a period of three years. If Mr. Menar's employment has not earlier
terminated due to death, disability or by the Company for cause, at the end of
the initial three year term, his employment will be extended for successive 1
year

8
<PAGE>
periods unless the Company provides written notice at least 90 days prior to the
end of the applicable term of its intention not to extend his employment.
Mr. Menar will receive an annual base salary of $350,000, less payroll
deductions and other required withholdings, which will be increased by $25,000
on March 1, 2000. Thereafter, the Company will review annually Mr. Menar's
salary and determine in its discretion any increase in such salary. Mr. Menar
will be eligible to receive a bonus equal to 50% of his base salary each year
during his employment in accordance with the Company's management bonus plan if
certain performance targets are met by the Company and Mr. Menar. Mr. Menar will
be entitled to participate in all incentive, saving and other retirement plans
and programs of the Company and will receive standard benefits, including
medical, hospital, surgical, disability, accidental death, travel and/or life
insurance coverage generally available to other senior executive officers of the
Company. In addition, pursuant to the Letter Agreement, the Company granted
Mr. Menar options to purchase 250,000 shares of Common Stock under the Company's
1999 Special Purpose Stock Option Plan. The exercise price per share of such
options will be equal to the fair market value of one share of the Company's
Common Stock on August 4, 1999. On each of the first and second anniversaries of
the date of the Letter Agreement, Mr. Menar will be granted additional options
to purchase 150,000 shares of the Company's Common Stock which shall have an
exercise price per share of the fair market value of one share of the Company's
Common Stock on the date of the grant of such subsequent options.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee presently is comprised of Messrs. Weiss and
Achabal, neither of whom is or has been an officer or employee of the Company or
any of its subsidiaries. Mr. Weiss serves as the chair of the Compensation
Committee.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

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 SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (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: (i) base salary, (ii) annual incentive in the form of a cash bonus,
(iii) long-term incentive in the form of equity

9
<PAGE>
based stock options and (iv) 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 other public specialty retailers in comparable lines of trade and
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
competitive in the industry. The base salary for Mr. Chinni, the Chairman of the
Board of Directors, President and CEO, for the fiscal year ended February 27,
1999 was $387,692. Mr. Chinni's base salary was established in accordance with
the terms of his employment agreement with the Company.

Executive officers are eligible to receive annual incentives in the form of
a combination of cash bonuses and stock options. For the fiscal year ended
February 27, 1999, the cash bonuses were targeted at 15-50% 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 cash bonuses will be based on
achievement of pre-defined net income levels, as well as an executive's personal
performance (although the Compensation Committee can approve exceptions for
outstanding individual performances). For the fiscal year ended February 27,
1999, the pre-defined financial performance targets were met. Accordingly, the
Compensation Committee awarded incentive cash bonuses to executive officers for
the fiscal year ended February 27, 1999. Mr. Chinni received a bonus of $175,000
for the fiscal year ended February 27, 1999.

The other bonus 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 CEO for the fiscal year ended
February 27, 1999 were 100,000.

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 Founder, Chairman Emeritus and a director on the
Board of Directors, received split dollar life insurance benefits from the
Company.

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 $1.0 million in any
taxable year of the corporation beginning after 1993. Compensation which
constitutes "performance-based compensation" is excludable in applying the $1.0
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
Marco F. Weiss, Chairman
Dale D. Achabal

10
<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.

The historical stock market performance of the Common Stock shown below is
not necessarily indicative of future stock performance.

COMPARISON OF 52 MONTH CUMULATIVE TOTAL RETURN (1)
AMONG STROUDS, INC., A PEER GROUP (2) AND THE NASDAQ STOCK MARKET--US INDEX

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
<S> <C> <C> <C>
Strouds Inc. Peer Group Nasdaq Stock Market (U.S.)
10/12/94 $100 $100 $100
2/25/95 $60 $95 $104
3/2/96 $36 $100 $146
3/1/97 $31 $120 $176
2/28/98 $16 $230 $241
2/27/99 $16 $243 $314
</TABLE>

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

(1) Assumes $100.00 was invested on October 12, 1994 in stock or index and
assumes dividends are reinvested.

(2) The Peer Group companies consist of Barnes & Noble, Inc., Bed Bath & Beyond
Inc., Bombay Company, Inc., Goodguys, Inc. Lechters, Inc., Linens 'n
Things, Inc., Pier 1 Imports, Inc., Three D Departments, Inc. and
Williams-Sonoma, Inc.

11
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF MANAGEMENT

The table below sets forth the beneficial ownership of the Company's Common
Stock as of December 1, 1999 for (1) each of the Named Executive Officers (as
defined under "Executive Compensation--Summary Compensation Table"), (2) each
person who is, as of December 1, 1999, a director on the Board of Directors of
the Company, including all nominees to the Board of Directors, and (3) all
current directors and current executive officers as of December 1, 1999 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>
NUMBER OF SHARES
OF COMMON STOCK PERCENT OF
NAME OF BENEFICIAL OWNER POSITION BENEFICIALLY OWNED CLASS
- ------------------------ -------- ------------------ ----------
<S> <C> <C> <C>
Charles R. Chinni........... Chairman of the Board of Directors, 419,892(a) 5.7%
President, and Chief Executive Officer

Wilfred C. Stroud........... Founder, Chairman Emeritus and Director 856,543(b) 12.1%

Douglas C. Felderman (c).... Senior Vice President--Finance, Chief
Financial Officer and Secretary 2,500 *

Dale D. Achabal............. Director 58,250(d) *

Larry R. Bemis.............. Director 13,700(d) *

Richard F. Clayton.......... Director 7,500(e) *

Marshall S. Geller.......... Director 644,587(e) 9.1%

Marco F. Weiss.............. Director 39,250(d) *

All directors and executive
officers as a group (12
persons)................... 2,392,531(f) 32.1%
</TABLE>

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

* Less than 1%.

(a) Beneficial ownership includes 275,000 shares of Common Stock which may be
acquired upon exercise of stock options exercisable within the next
60 days.

(b) Beneficial ownership includes 26,905 shares of Common Stock which may be
acquired upon exercise of stock options exercisable within the next
60 days.

(d) Beneficial ownership includes 6,250 shares of Common Stock which may be
acquired upon exercise of stock options exercisable within the next
60 days.

(e) Beneficial ownership includes 2,500 shares of Common Stock which may be
acquired upon exercise of stock options exercisable within the next
60 days.

(f) Beneficial ownership includes 378,721 shares of Common Stock which may be
acquired upon exercise of stock options exercisable within the next
60 days. Also includes beneficial ownership by Gary A. Van Wagner, the
Company's Corporate Controller, of 4,000 shares of Common Stock, Jeffrey
Stroud, the Company's Senior Vice President - Marketing, of 298,903 shares
of Common Stock, Denise Marsicano, the Company's Senior Vice President -
Stores, of 31,056 shares of Common Stock, Harry Brown, the Company's General
Merchandising Manager and Executive Vice President, of 0 shares of Common
Stock and Robert Menar, the Company's Chief Operating Officer, Secretary and
interim Chief Financial Officer, of 18,850 shares of Common Stock.

12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The table below sets forth certain information regarding the beneficial
owners of more than 5% of the Company's Common Stock, other than the Company's
directors and executive officers, as of December 1, 1999:

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------------------ ------------------ ----------------
<S> <C> <C>
BT Capital Partners, Inc. ("BT Capital").................... 517,645(1) 7.4%
130 Liberty Street
New York, NY 10006

West Highland Capital, Inc. ("WHC")......................... 680,000(2) 9.7%
300 Drake's Landing Road, Suite 290
Greenbrace, CA 94904

J.R. Zone, as Trustee of the................................ 539,779(3) 7.7%
J.R. Zone 1983 Trust Agreement
20700 Ventura Boulevard, #335
Woodland Hills, CA 91364

Dimensional Fund Advisors Inc. ("DFAI")..................... 608,400(4) 8.6%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401

U.S. Bancorp ("Bancorp").................................... 438,000(5) 6.2%
111 S.W. Fifth Avenue
Portland, OR 97204

Bedford Oak Advisors, L.P................................... 500,000(6) 7.1%
100 South Bedford Road
Mount Kisco, New York 10549

Heartland Advisors, Inc. ("Heartland")...................... 700,000(7) 9.9%
790 North Milwaukee Street
Milwaukee, WI 53202
</TABLE>

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

(1) Information based solely on Amendment No. 7 dated as of April 21, 1999 to
the Schedule 13G dated February 14, 1995 filed by Bankers Trust Corporation,
a New York corporation, and its indirect wholly-owned subsidiary, BT
Capital, a Delaware corporation, with the Securities and Exchange
Commission. BT Capital has (i) sole voting power with respect to 517,645
shares of Common Stock and (ii) sole dispositive power with respect to
517,645 shares of Common Stock.

(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.

13
<PAGE>
(4) Information based solely on Amendment No. 3 dated February 11, 1999 to the
Schedule 13G dated February 7, 1996 filed by DFAI with the Securities and
Exchange Commission. DFAI has (i) sole voting power with respect to 608,400
shares of Common Stock and (ii) sole dispositive power with respect to
608,400 shares of Common Stock. Schedule 13G of DFAI states that all
securities reported in the Schedule 13G are owned by DFAI's advisory
clients, including commingled group trusts, none of which, to the knowledge
of DFAI, owns more that 5% of the class.

(5) 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. Bancorp has (i) sole voting power with respect to 438,000 shares of
Common Stock, (ii) sole dispositive power with respect to 199,500 shares of
Common Stock and (iii) shared dispositive power with respect to 1,200 shares
of Common Stock.

(6) Information based solely on the Schedule 13G dated August 27, 1999 filed
with the Securities and Exchange Commission jointly by Bedford Oak Partners,
L.P., a Delaware limited partnership ("BOP"), Bedford Oak Advisors, LLC, a
Delaware limited liability company and the investment manager of BOP
("BOA"), and Harvey Eisen ("Eisen"), the managing member of BOA
(collectively, the "Reporting Persons"). The business address of each of the
Reporting Persons is 100 South Bedford Road, Mount Kisco, New York 10549.
Eisen is a United States citizen.

(7) Information based solely on Amendment No. 1 dated February 4, 1999 to the
Schedule 13G dated February 2, 1998 filed by Heartland with the Securities
and Exchange Commission. Heartland has sole dispositive power with respect
to 700,000 shares of Common Stock. Schedule 13G of Heartland states that the
shares of common stock are held in investment advisory accounts of
Heartland. As a result, various persons have the right to receive or the
power to direct the receipt of dividends from, or the proceeds from the sale
of, the securities. The interests of one such account, Heartland Value Fund,
a series of Heartland Group, Inc., a registered investment company, relates
to more than 5% of the class.

14
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS RELATING TO CHF AND REFLECTIONS

In 1979, Mr. Stroud, the Founder, Chairman Emeritus and a director of the
Company, invested in Reflections Fine Bedding Attire, Inc. ("Reflections"), a
manufacturer of bedding merchandise and accessories. Until 1993, Mr. Stroud had
been a director of Reflections and had beneficially owned (along with his
spouse) 45% of the stock of Reflections. In the fiscal year ended February 27,
1999, Reflections sold approximately $0.2 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
14.8% 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 ten 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.

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

15
<PAGE>
vendors. In fiscal year ended February 27, 1999, purchases by Strouds from
Reflections and CHF equaled 0.1% of the Company's total cost of sales, including
buying and occupancy.

During the contract year ended May 31, 1998, total sales of the Reflections
Business were $2.0 million, of which $0.4 million were sales to Strouds.
Pursuant to the formula described above, Mr. Stroud received a payment of
$15,000 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, 1998, a total of
$548,000 (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 7.4% 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 RELATIONSHIP

Mr. Bemis, a director on the Company's Board of Directors, is a partner in
the law firm of Millar, Hodges & 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's firm receives customary legal fees
for such services. For the fiscal year ended February 27, 1999, the aggregate
fees paid by the Company to the law firm of Millar, Hodges and Bemis was
approximately $13,000.

16
<PAGE>
OTHER INFORMATION

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of 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 (collectively, "Insiders"), to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of the Common Stock. Insiders are required by the Securities and
Exchange Commission's regulations to furnish the Company with copies of all
Section 16(a) reports filed by such persons.

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, as of December 1, 1999, all Insiders
complied with all Section 16(a) filing requirements applicable to them.

OTHER MATTERS AT THE MEETING

The Board of Directors does not know of any matters to be presented at the
Special Meeting other than those mentioned in this Proxy Statement. If any other
matters are properly brought before the Special Meeting, or any adjournment or
postponement thereof, 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

STOCKHOLDER PROPOSALS FOR 2000 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 2000 Annual Meeting. 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 1, 2000. 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. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the annual meeting is given or made to the
stockholders, the stockholder's notice, to be timely, must be received no later
than the close of business on the tenth day following the day on which such
notice of

17
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the date of the annual meeting was mailed or such public disclosure was made,
whichever first occurs. A stockholder's notice to the secretary of the Company
shall set forth: (a) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (b) the name and record address of the stockholder proposing
such business, (c) the class, series and number of shares of the Corporation
which are beneficially owned by the stockholder and (d) any material interest of
the stockholder in such business.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the 1934 Act
and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission. Reports, proxy
statements and other information filed by the Company may be inspected without
charge and copies obtained upon payment of prescribed fees from the Public
Reference Section of the Securities and Exchange Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the
Securities and Exchange Commission's regional offices located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621-2511, or by way of the
Securities and Exchange Commission's Internet address, http://www.sec.gov.

ALL STOCKHOLDERS ARE URGED TO IMMEDIATELY COMPLETE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.

By Order of the Board of Directors

[LOGO]

Charles R. Chinni

CHAIRMAN OF THE BOARD OF DIRECTORS,

PRESIDENT AND CHIEF EXECUTIVE OFFICER

City of Industry, California

December 15, 1999

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P R O X Y

STROUDS, INC.
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD JANUARY 26, 2000

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Charles R. Chinni or Robert M. Menar, 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 Special Meeting
of Stockholders of Strouds, Inc., to be held at The Westin Los Angeles Airport,
5400 West Century Boulevard, Los Angeles, California, at 10:00 a.m., local time
on Wednesday, January 26, 2000 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
<PAGE>
(1) Approve certain amendments to the Amended and Restated 1994 Equity
Participation Plan of Strouds, Inc., as amended (the "1994 Plan, as
Amended") to, among other things, (i) increase the number of shares of the
Company's Common Stock available for issuance thereunder from 1,680,000 to
3,680,000 and (ii) increase the maximum number of shares that may be granted
to any individual in any calendar year from 500,000 to 1,000,000, and
restate the 1994 Plan, as Amended as The Second Amended and Restated 1994
Equity Participation Plan.

/ / FOR / / AGAINST / / ABSTAIN

The undersigned acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement dated December 15, 1999.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD IN THE ENCLOSED ENVELOPE.

Dated: _____________________, 1999

__________________________________
(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.