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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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HANDLEMAN COMPANY
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SEC 1913 (02-02)

[HANDLEMAN COMPANY LOGO]

Handleman Company
500 Kirts Boulevard
Troy, Michigan 48084

Notice of 2004
Annual Meeting of Shareholders
and Proxy Statement

[HANDLEMAN COMPANY LOGO]

Stephen Strome
Handleman Company
Chairman and Chief Executive Officer
500 Kirts Boulevard
Troy, MI 48084

August 6, 2004

Dear Shareholders:

It is my pleasure to invite you to Handleman Company's 2004 Annual Meeting of
Shareholders. We will hold the meeting on Wednesday, September 8, 2004, at 2:00
p.m. Eastern Daylight Time, at the Somerset Inn, 2601 West Big Beaver Road,
Troy, Michigan 48084. During the Annual Meeting we will discuss each item of
business described in the enclosed Notice of Annual Meeting and Proxy Statement
and give a report on the Company's business operations. There will also be time
to respond to questions.

We hope you will be able to attend the Annual Meeting. Please vote your shares
regardless of whether you plan to attend in person. We are pleased to offer
multiple options for voting your shares. As detailed in the "General Information
About the Annual Meeting and Voting" section of the Proxy Statement (see page
35), you can vote using any of the following methods: vote by telephone or the
Internet; sign and date the proxy card or voting instruction card and return it
in the prepaid envelope; or vote in person at the meeting.

Thank you for your continued support of Handleman Company.

Sincerely,

/s/ Stephen Strome
------------------
Stephen Strome

TABLE OF CONTENTS

PAGE
----

Notice of the 2004 Annual Meeting of Shareholders .......................................................... 1
General Information......................................................................................... 2
Voting Securities........................................................................................... 2
Election of Directors....................................................................................... 3
- Nominees for Terms to Expire at the 2007 Annual Meeting....................................... 3
- Continuing Directors.......................................................................... 4
- Directors Whose Terms Expire at the 2005 Annual Meeting ................................... 4
- Directors Whose Terms Expire at the 2006 Annual Meeting ................................... 4
Board Information........................................................................................... 5
- Board Meetings................................................................................ 5
- Board Committees ............................................................................. 5
- Audit Committee ........................................................................... 5
- Corporate Governance and Nominating Committee ............................................. 5
- Corporate Governance and Nomination Committee Process for Identifying and Evaluating
Nominees................................................................................ 6
- Compensation Committee..................................................................... 6
- Presiding Director ........................................................................... 7
- Communications with the Board................................................................. 7
- Director Education ........................................................................... 7
- Board Compensation ........................................................................... 8
- Certain Relationships and Related Transactions................................................ 9
Section 16(a) Beneficial Ownership Requirements............................................................. 9
Compensation Committee Report............................................................................... 9
Audit Committee Report...................................................................................... 13
Performance Graph........................................................................................... 15
Executive Compensation...................................................................................... 16
Option Grants in Last Fiscal Year........................................................................... 17
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values........................... 18
Pension Plan Table.......................................................................................... 19
Supplemental Executive Retirement Plan Table................................................................ 20
Change in Control Agreements................................................................................ 20
Security Ownership of Certain Beneficial Owners and Management.............................................. 21
Proposal to Approve the Handleman Company 2004 Stock Plan .................................................. 23
Other Matters............................................................................................... 31
- Relationship with Independent Auditor ........................................................ 31
- Independent Auditor Fees ..................................................................... 31
- Other Proposals............................................................................... 32
General Information About the Annual Meeting and Voting..................................................... 33
What is a proxy?.............................................................................. 33
What is a proxy statement?.................................................................... 33
Who can vote?................................................................................. 33
What is the quorum requirement of the Annual Meeting?......................................... 33
What am I voting on?.......................................................................... 33
What are the voting recommendations of the Board?............................................. 34
What if other matters are presented for determination at the Annual Meeting?.................. 34
What vote is required to elect the Directors?................................................. 34
What shares are covered by my proxy card?..................................................... 34
What is the difference between holding shares as a shareholder of record
and as a beneficial owner?.............................................................. 34

PAGE
----

How do I vote?................................................................................ 35
What is the effect of not voting?............................................................. 35
What can I do if I change my mind after I vote my shares? .................................... 36
How do participants in the Handleman Company 401(k) Plan vote their shares?................... 36
How do shareholders of record vote their shares if they are also participants in the
Handleman Company 401(k) Plan?............................................................. 36
What does it mean if I get more than one proxy card? ......................................... 37
Will there be a management presentation at the Annual Meeting?................................ 37
Who can attend the Annual Meeting?............................................................ 37
What do I need to attend the Annual Meeting?.................................................. 37
Can I bring a guest?.......................................................................... 38
Who will count the vote?...................................................................... 38
How much did this proxy solicitation cost?.................................................... 38
How do I recommend someone to be a Director for the 2005 Annual Meeting?...................... 38
When are shareholder proposals due for the 2005 Annual Meeting?............................... 38
Where can I find the Corporate Governance Guidelines for Handleman Company?................... 38
Can I access the Proxy Statement and 2004 Annual Report on the Internet instead of receiving
paper copies?.............................................................................. 39
How do I obtain more information about Handleman Company?..................................... 39
Appendix A - Audit Committee Charter........................................................................ A-1
Appendix B - Corporate Governance Guidelines................................................................ B-1
Appendix C - Code of Business Conduct and Ethics ........................................................... C-1
Appendix D - Corporate Governance and Nominating Committee Charter.......................................... D-1
Appendix E - Compensation Committee Charter................................................................. E-1
Appendix F - 2004 Stock Plan................................................................................ F-1

HANDLEMAN COMPANY
NOTICE OF THE 2004
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 8, 2004

The Annual Meeting of Shareholders of Handleman Company will be held on
Wednesday, September 8, 2004 at 2:00 p.m. Eastern Daylight Time, at the Somerset
Inn, 2601 West Big Beaver Road, Troy, Michigan 48084. The proposals to be voted
on at the Annual Meeting are as follows:

1. The election of two Directors. Nominees are:

Elizabeth A. Chappell
Ralph J. Szygenda

2. To approve the Handleman Company 2004 Stock Plan, which authorizes
the granting of stock options, stock appreciation rights, restricted
stock, and performance share and performance unit awards.

3. To transact such other business as may properly come before the
Annual Meeting and any adjournment thereof.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2.

You are entitled to vote at the Annual Meeting if you were a shareholder of
record at the close of business on July 12, 2004.

If you have any questions about the Annual Meeting, please contact:

Corporate Secretary
Handleman Company
500 Kirts Boulevard
Troy, MI 48084
248-362-4400

BY ORDER OF THE BOARD OF DIRECTORS

HANDLEMAN COMPANY
500 KIRTS BOULEVARD
TROY, MICHIGAN 48084

PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD SEPTEMBER 8, 2004

GENERAL INFORMATION

The approximate mailing date for this Proxy Statement and the proxy is August 6,
2004. A copy of the Annual Report of the Company for the fiscal year ended May
1, 2004 accompanies this Notice.

It is important that your shares be represented at the Annual Meeting. We
encourage you to read the Proxy Statement and vote your shares as soon as
possible. The proxy is solicited by the Board of Directors of the Company. The
shares represented by valid proxies in the enclosed form will be voted if
received in time for the Annual Meeting. The expenses in connection with the
solicitation of proxies will be borne by the Company and may include requests by
mail and personal contact by its Directors, officers and employees. In addition,
the Company has retained Georgeson Shareholder Communications Inc., 17 State
Street, New York, NY 10004 to aid in the solicitation of proxies from brokers,
banks, other nominees and institutional holders at a fee not to exceed $7,500
plus out-of pocket expenses. The Company will reimburse brokers or other
nominees for their expenses in forwarding proxy materials to shareholders. Any
person giving a proxy has the power to revoke it at any time before it is voted.

For additional information regarding voting your shares, see the "General
Information About the Annual Meeting and Voting" section of this Proxy Statement
(beginning on page 33).

VOTING SECURITIES

Only holders of record of shares of $.01 par value common stock (the "Common
Stock") at the close of business on July 12, 2004 are entitled to notice of, and
to vote at, the Annual Meeting of Shareholders or at any adjournment or
adjournments thereof, each share having one vote. As of July 12, 2004, the date
of record, the Company had issued and outstanding 23,355,415 shares of Common
Stock.

I. ELECTION OF DIRECTORS

The Board of Directors consists of eight members. The Directors are divided into
three classes. At each Annual Meeting, the term of one class expires. Directors
in each class serve for three-year terms, or until the Director's retirement.
Two Directors are to be elected by shareholders at the Annual Meeting for
three-year terms expiring in 2007. The Board's nominees are Ms. Elizabeth A.
Chappell and Mr. Ralph J. Szygenda.

Following each Director's name is (1) the year he or she was first elected a
Director, (2) his or her age, and (3) a brief account of the Director's business
experience during the past five years.

BOARD NOMINEES

NOMINEES FOR TERMS TO EXPIRE AT THE 2007 ANNUAL MEETING

ELIZABETH A. CHAPPELL Director since 1999
Age 46

Ms. Chappell has served as President and Chief Executive Officer of the Detroit
Economic Club since April 15, 2002. From January 4, 2001 through April 14, 2002,
Ms. Chappell served as a business consultant in private practice. Ms. Chappell
served as Executive Vice President Corporate Communications and Investor
Relations of Compuware Corporation from January 3, 2000 to January 3, 2001. Ms.
Chappell was formerly President and Chief Executive Officer of The Chappell
Group Inc., a consulting firm she founded in 1995 that specialized in strategic
planning, organizational development and sales and marketing strategies. Ms.
Chappell is a Director of Compuware Corporation.

RALPH J. SZYGENDA Director since 2003
Age 56

Mr. Szygenda has served as Group Vice President and Chief Information Officer of
General Motors Corporation since January 7, 2000. Mr. Szygenda joined General
Motors Corporation on June 28, 1996 as Vice President and Chief Information
Officer. Mr. Szygenda is a Director of Covisint LLC.

THE BOARD RECOMMENDS THAT YOU VOTE "FOR" ITS NOMINEES

CONTINUING DIRECTORS

DIRECTORS WHOSE TERMS EXPIRE AT THE 2005 ANNUAL MEETING

EUGENE A. MILLER Director since 2002
Age 66

Mr. Miller served as Chairman of the Board of Comerica Incorporated and Comerica
Bank from January 1, 2002 through his retirement on October 1, 2002. From June
1, 1999 through December 31, 2001, Mr. Miller served as Chairman, President and
Chief Executive Officer of Comerica Incorporated and Comerica Bank. From June
30, 1993 through May 31, 1999, Mr. Miller served as Chairman and Chief Executive
Officer of Comerica Incorporated and Comerica Bank. Mr. Miller is a Director of
DTE Energy, Inc., the Amerisure Companies, Flint, Inc., and McKinley Associates.

SANDRA E. PETERSON Director since 2001
Age 45

Ms. Peterson has served as a private investor and consultant since March 1,
2004. From September 1, 2003 through February 29, 2004, Ms. Peterson served as a
Group Vice President of Medco Health Solutions. From January 1, 1999 through
August 30, 2003, Ms. Peterson served as the Senior Vice President, Health
Businesses, Medco Health Solutions, Inc. (also known as Merck-Medco). From April
8, 1996 through December 31, 1998, Ms. Peterson served as Executive Vice
President of Nabisco Holding Company. Ms. Peterson is a Director of The Dun &
Bradstreet Corporation.

IRVIN D. REID Director since 2002
Age 63

Dr. Reid has served as President of Wayne State University since November 24,
1997. From August 1, 1989 through November 23, 1997, Dr. Reid served as
President of Montclair State University. Dr. Reid is a Director of Mack-Cali
Real Estate Investment Trust and the Federal Reserve Board Chicago/ Detroit
Branch.

DIRECTORS WHOSE TERMS EXPIRE AT THE 2006 ANNUAL MEETING

JAMES B. NICHOLSON Director since 1991
Age 61

Mr. Nicholson has served as President, Chief Executive Officer and Director of
PVS Chemicals, Inc. since 1979. Mr. Nicholson is a Director of LaSalle Bank
Corporation. Mr. Nicholson is also Chairman of the Board of Amerisure Companies.

LLOYD E. REUSS Director since 1993
Age 68

Mr. Reuss served as General Motors Corporation's Executive Vice President of New
Vehicles and Systems from April 6, 1992 through his retirement on January 1,
1993. Mr. Reuss served as President of General Motors Corporation from August 1,
1990 through April 5, 1992. Mr. Reuss is a Director of International Speedway
Corporation and U.S. Sugar Corporation.

STEPHEN STROME Director since 1989
Age 59

Mr. Strome has served as Chairman of the Board and Chief Executive Officer of
the Company since January 12, 2001. From May 1, 1991 through January 11, 2001,
Mr. Strome served as President and Chief Executive Officer of the Company.
Mr.Strome is a Director of AmerUs Group.

BOARD INFORMATION

BOARD MEETINGS

During the fiscal year ended May 1, 2004, the Board held a total of seven
meetings. During fiscal 2004, each Director of the Company attended at least 75%
of the aggregate number of meetings of the Board and of all committees of the
Board on which such Director served, during the time each such Director was a
member of the Board. The Annual Meeting of Shareholders is held in conjunction
with a regularly scheduled Board meeting, and Directors are expected to attend.
In 2003, 75% of the Directors attended the Annual Meeting of Shareholders.

Handleman Company's independent Directors met without the Chief Executive
Officer six times during the fiscal year ended May 1, 2004.

BOARD COMMITTEES

AUDIT COMMITTEE

The Audit Committee is appointed by the Board of Directors of the Company to
provide assistance to the Board of Directors in fulfilling its oversight
responsibility relating to the Company's financial statements and financial
reporting processes; the systems of internal accounting and financial controls;
the internal audit function; the annual independent audit of the Company's
financial statements; any financially-related legal compliance or ethics
programs as established by the Board; and any other areas specified by the Board
of potential significant financial risk to the Company.

All members of the Audit Committee are financially literate, as the Company's
Board has interpreted such qualification in its business judgment. Eugene A.
Miller satisfies the standard for "audit committee financial expert" in
compliance with the Sarbanes-Oxley Act of 2002 and has accounting or related
financial management expertise as required by the New York Stock Exchange. None
of the members of the Audit Committee are members of more than two audit
committees of public companies, inclusive of Handleman Company.

The functions of the Audit Committee are listed in the Audit Committee Charter,
which is included herein as Appendix A to this Proxy Statement.

The Audit Committee held 12 meetings during the fiscal year ended May 1, 2004.
All members of the Audit Committee are (i) independent directors as defined
under the rules of the New York Stock Exchange, (ii) non-employee directors as
defined under Section 16 of the Securities and Exchange Act, and (iii) outside
directors as defined under Section 162(m) of the Internal Revenue Code.
Members: Mr. Miller, Chairman, Ms. Peterson, Dr. Reid and Mr. Szygenda.

CORPORATE GOVERNANCE AND NOMINATING COMMITTEE

The Corporate Governance and Nominating Committee considers the performance of
incumbent Directors and recommends to the Board nominees for election as
Directors. The Corporate Governance and Nominating Committee will consider
nominees for Directors recommended by shareholders, which recommendations for
the 2005 Annual Meeting of Shareholders should be submitted to the Chairman of
the Corporate Governance and Nominating Committee at the Company's executive
offices, no later than March 14, 2005. The Board of Directors has adopted
Corporate Governance Guidelines ("Guidelines") recommended by the Committee. The
Guidelines are reviewed annually and are monitored by the Committee. The
Guidelines establish corporate governance standards, outline the respective
responsibilities of management and the Board and provide a process for
evaluating the performance of the Board. A copy of the Guidelines is included
herein as Appendix B to this Proxy Statement.

Guideline number 35 of the Corporate Governance Guidelines states that the Board
believes that it is important that the Company's shareholders and others are
able to review its corporate governance practices. Accordingly, the Company's
Corporate Governance Guidelines, Code of Business Conduct and Ethics and
Committee Charters are published on the Company's website www.handleman.com.

The Company's Code of Business Conduct and Ethics is included herein as Exhibit
C to this Proxy Statement.

The functions of the Corporate Governance and Nominating Committee are listed in
the Corporate Governance and Nominating Committee Charter, which is included
herein as Appendix D to this Proxy Statement.

The Corporate Governance and Nominating Committee held one meeting during the
fiscal year ended May 1, 2004. All members of the Corporate Governance and
Nominating Committee are (i) independent directors as defined under the rules of
the New York Stock Exchange, (ii) non-employee directors as defined under
Section 16 of the Securities and Exchange Act, and (iii) outside directors as
defined under Section 162(m) of the Internal Revenue Code. Members: Mr. Reuss,
Chairman, Mr. Nicholson, Ms. Peterson and Dr. Reid.

CORPORATE GOVERNANCE AND NOMINATION COMMITTEE PROCESS FOR IDENTIFYING AND
EVALUATING NOMINEES

The Corporate Governance and Nominating Committee (the "Committee") is
responsible for recommending candidates for membership on the Board. In
assessing potential new directors, the Committee considers individuals from
various disciplines and diverse backgrounds. The selection of qualified
directors is complex and crucial to Handleman's long-term success. Board
candidates are considered based upon various criteria, such as their broad-based
business skills and experiences, a global business and social perspective,
concern for the long-term interests of the shareholders, and personal integrity
and judgment. In addition, directors must have time available to devote to Board
activities and to enhance their knowledge of Handleman Company and the music
industry. To assist in the identification and evaluation of qualified director
candidates, on occasion the services of a search firm have been engaged. Under
Appendix B see Corporate Governance Guideline 23 for "Board Membership Criteria"
and Guideline 24 for "Identifying New Director Candidates/Extending Invitations
to the Board".

Refer to "How do I recommend someone to be a Director for the 2005 Annual
Meeting" under "General Information About the Meeting and Voting" on page 38 of
this Proxy Statement for procedures by which shareholders may submit nominees to
the Board.

COMPENSATION COMMITTEE

The duties of the Compensation Committee are: recommending to the Board of
Directors the remuneration arrangements for senior management; recommending to
the Board of Directors compensation plans in which officers are eligible to
participate; recommending to the Board of Directors director compensation
programs; and granting stock options, performance shares and restricted stock
awards under the Company's 2001 Stock Option and Incentive Plan. The functions
of the Compensation Committee are listed in the Compensation Committee Charter,
which is included herein as Appendix E to this Proxy Statement.

The Compensation Committee held five meetings during the fiscal year ended May
1, 2004. All members of the Compensation Committee are (i) independent directors
as defined under the rules of the New York Stock Exchange, (ii) non-employee
directors as defined under Section 16 of the Securities and Exchange Act, and
(iii) outside directors as defined under Section 162(m) of the Internal Revenue
Code. Members: Mr. Nicholson, Chairman, Ms. Chappell, Mr. Miller and Mr. Reuss.

PRESIDING DIRECTOR

The Board designates annually an independent, non-employee Director to serve as
Presiding Director. Duties and responsibilities of the Presiding Director
include:

- Presiding over executive sessions of the independent Board members;

- Advising the Chief Executive Officer of appropriate feedback from
executive sessions including any actions to be taken, as well as any
issues or concerns raised by the independent Directors;

- Advising on the agenda for the Board meetings;

- Meeting with senior officers, if deemed appropriate, to discuss the
business and issues facing the Company;

- Working with the Chairman of the Corporate Governance and Nominating
Committee in the selection of the Committee Chairs; and

- Meeting with shareholders, if appropriate, to discuss their
concerns.

Refer to Corporate Governance Guideline 14, under Appendix B, for "Executive
Sessions of Independent Directors" for the procedure by which the Presiding
Director is selected for executive sessions of the independent Directors.

The Chair of the Compensation Committee will serve as Presiding Director for
fiscal year 2005, the Chair of the Audit Committee for fiscal year 2006, the
Chair of the Corporate Governance and Nominating Committee for fiscal year 2007,
and rotating in the same fashion thereafter.

Effective May 2, 2004 the Presiding Director is Mr. James B. Nicholson.

COMMUNICATIONS WITH THE BOARD

Shareholders wishing to communicate with the Presiding Director or to
non-employee Directors may send a letter by regular or express mail addressed to
the Presiding Director or Non-Employee Director, Attention: Corporate Secretary,
Handleman Company, 500 Kirts Boulevard, Troy, MI 48084. All correspondence to
Directors will be acknowledged by the Corporate Secretary, forwarded to the
appropriate Director, and may also be forwarded within Handleman Company to the
subject matter expert for review.

DIRECTOR EDUCATION

One of Handleman Company's core values is "Continuous Learning and Improvement."
The Company encourages and supports this value throughout all levels within the
organization. The Board members also believe continuous learning is important to
ensure the ongoing effectiveness of the Board. Accordingly, the Board has
established a Corporate Governance Guideline for ongoing continuing education
for Directors. See Guideline 34 of Handleman Company's Corporate Governance
Guidelines attached as Appendix B. Following are recent activities:

MS. SANDRA PETERSON attended "Accounting Essentials for Corporate
Directors - Enhancing Financial Integrity" presented at the Columbia
Business School, New York, NY from April 19 to 21, 2004. The purpose of
the course was to strengthen the ability of corporate directors to
evaluate the appropriateness of financial reporting and accounting
decisions and representations made by management.

MS. ELIZABETH CHAPPELL attended "Directors' College," a course presented
by the Stanford Law School, Stanford, CA from June 20 to 22, 2004. The
purpose of the course was to provide the latest information on critical
issues facing boards today - Sarbanes-Oxley compliance, compensation,
audit committee practices, litigation, D&O insurance coverage and ethical
concerns - with perspectives on best practices. This course is accredited
by Institutional Shareholder Services.

MR. STEPHEN STROME will be attending "The Director's Consortium," a course
presented by The Wharton School, The University of Chicago, and Stanford
Law School being held at the University of Pennsylvania campus from August
25 to 27, 2004. The purpose of the course is to provide a review of policy
and strategy; Nominating Committee issues and CEO succession; Compensation
Committee issues; Audit Committee - qualifications, responsibilities, and
content; Finance and Directors' fiduciary duties: the core duties of
directors and what they mean in practice. This course is accredited by
Institutional Shareholder Services.

BOARD COMPENSATION

Officers of the Company who are Directors do not receive additional compensation
for services as a Director.

During fiscal 2004, non-employee Directors received annual retainers of $25,000.
To encourage non-employee Directors to own Company shares, Directors receive a
portion of their retainer in the Company's Common Stock each year. During fiscal
2004, non-employee Directors received annual retainers of $12,500 in restricted
stock with 100% vesting after one year and $12,500 in cash payable in four
quarterly installments of $3,125.

Each Director received meeting fees of $1,500 for each Board of Directors
meeting attended. In addition, each member on a committee was paid at the rate
of $1,500 for each committee meeting attended, except that the Audit Committee
Chairman received Audit Committee meeting fees of $2,500 for each meeting
attended. Non-committee Directors who are requested in advance to participate in
any committee meeting are also paid the committee meeting fee.

During fiscal year 2004 each committee Chairman received an annual fee of
$3,500. Directors are reimbursed for travel and other expenses related to
attendance at Board and committee meetings.

In addition, during fiscal year 2004 the Presiding Director, Lloyd E. Reuss,
received an annual fee of $6,000.

The 2001 Stock Option and Incentive Plan allows stock option grants to
non-employee Directors. In September 2003, options for 2,500 shares were awarded
to non-employee Directors with three year vesting. In addition, non-employee
Directors receive a one time stock grant of 500 shares when first joining the
Board. This grant vests 100% three years from the date the Director first joins
the Board.

The Company has approved a Deferral Plan for payment of Director fees that
permits members of the Board of Directors to elect to defer to a future date all
or any portion of their Director fees (including retainer fees, attendance fees
and committee fees), with interest to be added to deferred amounts with interest
at a rate equal to the Company's borrowing cost.

Under resolutions of the Board of Directors presently in effect, if a Corporate,
Division or Subsidiary Officer should die while serving in such capacity, the
Company will pay to the surviving spouse, or if there is no surviving spouse
then to the deceased's estate, the equivalent of one year's salary (excluding
bonuses) based upon the amount being received by the deceased at the time of his
or her death, in 24 equal monthly installments commencing one month after death.
In the event a Director should die while serving the Company in such position,
the Company shall pay to the deceased's surviving spouse, or if there be no
surviving spouse to the deceased's estate, the equivalent of one year's cash
retainer plus any accrued but unpaid Board and committee meeting

fees that the deceased was entitled to receive for such services from the
Company at the time of his or her death, such amount to be paid in a lump sum
one month from the date of death. In addition, the Director's restricted stock
retainer that the deceased received for services to the Company shall
immediately vest.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There are no matters relating to certain relationships and related transactions
that would be applicable to Handleman Company.

SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS

Federal securities law requires that Directors and Executive Officers of the
Company must report to the Securities and Exchange Commission and the Company,
within certain periods, the number of shares of the Company's equity securities
they own and any changes in such ownership. Based upon information furnished by
the Directors and Executive Officers, all required Section 16(a) filings for
fiscal year 2004 have been made in a timely manner.

COMPENSATION COMMITTEE REPORT

THE COMPENSATION COMMITTEE

The Compensation Committee (the "Committee") is composed only of independent
Directors as defined by the requirements of the New York Stock Exchange and the
Company's Corporate Governance Guidelines. The Committee exercises the Board's
powers in designing and approving compensation programs for the Company. The
Committee makes every effort to see that the Company's compensation program is
consistent with the values of the Company and furthers its business strategy.
The Committee establishes the compensation policy for the Company's executives
and reviews the salaries, bonuses and stock incentives of each of the Executive
Officers including the Chief Executive Officer. The Committee will administer
the 2004 Stock Plan, if it is approved, and it administers the Company's 2001
Stock Option and Incentive Plan and prior stock option plans. A copy of the
Compensation Committee Charter is attached as Appendix E to this Proxy
Statement.

OVERALL OBJECTIVES

The Company's compensation objectives reflect its philosophy that the
compensation of its key employees (including Executive Officers) should:

- Provide performance-based total compensation at market-competitive
levels to attract and retain key executives critical to the
long-term success of the Company;

- Reward executives for long-term strategic management and the
enhancement of shareholder value;

- Provide a compensation program that motivates key employees to
achieve their strategic goals by tying compensation to the
performance of the Company and applicable business units, as well as
to individual performance; and

- Align the interests of its key employees with the long-term
interests of the Company's shareholders through the award of stock
incentives.

The compensation packages offered to key employees are based on the review of
compensation surveys and the advice of compensation consultants. In assessing
salary levels from a comparability standpoint, the Committee refers to
compensation surveys based on different groups of corporations with
approximately the same sales volume as the Company.

BASE SALARIES

Compensation depends on many factors, including individual performance and
responsibilities and an employee's longer term potential. The Company's
financial performance and the compensation levels at comparable companies are
important in determining base salaries.

Factors considered in establishing base salaries are:

- Analysis and evaluation of each salaried position with a comparison
of compensation levels predicated on responsibilities of similar
positions based upon the competitive marketplace on both a regional
and national basis. Salary levels are reviewed annually and are
subject to adjustment based on the general movement in salaries in
the job market, as well as the individual's job performance and
contributions to the Company;

- Prior year salary;

- Changes in individual job responsibilities; and

- Past performance of individuals.

BONUSES

The Company's bonus program is intended to encourage and reward the achievement
of corporate objectives. The named Executive Officers participate in the bonus
program. Awards under the bonus program during fiscal 2004 were based on the
Company attaining certain levels of operating performance, net income and cash
flow. In fiscal 2004, Mr. Braum received bonuses based on the overall
performance of the Company in terms of net income and return on invested
capital. In fiscal 2004, Messrs. Lopez, Sausa and Albrecht received bonuses
based on the operating performance and return on invested capital of their
individual business units and the consideration of personal objectives.

STOCK PLANS

The Company's shareholders approved the adoption of the Handleman Company 2001
Stock Option and Incentive Plan (the "Plan") that authorizes the granting of
stock options, performance shares and restricted stock.

The Committee believes that stock ownership by key employees (including
Executive Officers) and stock-based performance compensation arrangements foster
an interest in the enhancement of shareholder value and thus align management's
interests with that of the shareholders. In fiscal 2004, stock options,
restricted stock and performance shares were awarded to key employees in amounts
reflecting the participant's position and ability to influence the Company's
overall performance.

The Committee's policy has been to utilize vesting periods to encourage key
employees to continue in the employ of the Company, and to grant options to
provide a long-term incentive. The exercise price of the options is based on the
fair market value of the underlying shares on the date of the grant. Thus, such
options have value only if the price of the underlying shares increases.

The Committee reviewed the long-term incentives available to key employees from
the perspective of market competitiveness and value. The Committee also looked
at how to more closely align the Company's long-term incentive awards with the
creation of shareholder value. The Committee determined that the overall
effectiveness and value of the Plan is strengthened by the addition of
performance shares. Performance shares provide a strong link between pay and
performance. The number of shares that key employees would receive from the
fiscal 2004 performance share grant will be based on certain free cash flow
targets being achieved by April 29, 2006.

STOCK OWNERSHIP PROGRAM

Handleman Company has adopted certain minimum ownership guidelines for key
management and Directors. For the Chief Executive Officer, it is expected that
he own shares having a value equal to three times base salary. For other
executive officers the value of shares they are expected to own is two times
base salary. The Company has also adopted minimum stock ownership guidelines for
outside Directors. Each outside Director is expected to own Handleman Company
stock equivalent to a market price equal to three times the annual cash and
stock retainer. Outside Directors are expected to meet the share ownership
guidelines five years after first being elected a Director.

The Chief Executive Officer and all outside Directors with five years of service
have met their ownership requirement as of the Company's fiscal year ended May
1, 2004.

OTHER COMPENSATION

At various times in the past, the Company has adopted certain broad-based
employee benefit plans in which key management employees have been permitted to
participate and has adopted certain Executive Officer retirement, life and
health insurance and automotive plans. Other than the Company's 401(k) Plan,
which includes a Company Common Stock Fund which is intended to further align
employees' and shareholders' long-term financial interests, benefits under these
plans are not directly or indirectly tied to Company performance.

CHIEF EXECUTIVE OFFICER COMPENSATION

The annual base salary earned in fiscal 2004 by Stephen Strome, the Company's
Chief Executive Officer, was $642,300. Compensation for the Chief Executive
Officer is determined through a process similar to that discussed for other
Executive Officers. Mr. Strome was paid a bonus of $300,000 in fiscal 2004 based
on the overall performance of the Company in terms of net income and return on
invested capital. In fiscal 2004, Mr. Strome was awarded a nonqualified stock
option grant to purchase 27,200 shares of the Company's stock (see "Option
Grants in Last Fiscal Year" on page 17 of this Proxy Statement) and a grant of
58,800 performance shares of the Company's common stock, which will be
distributed if certain free cash flow targets are achieved by April 29, 2006.
The purpose of these grants is to ensure attention to the Company's long-term
strategies and objectives. The Committee believes Mr. Strome's compensation to
be competitive with compensation practices of the companies included in the
survey prepared by the outside consultant reporting directly to the Committee.

BY THE MEMBERS OF THE COMPENSATION COMMITTEE OF HANDLEMAN COMPANY

James B. Nicholson, Chairman
Elizabeth A. Chappell
Eugene A. Miller
Lloyd E. Reuss

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AUDIT COMMITTEE REPORT

The Audit Committee of the Handleman Company Board of Directors is composed of
four independent Directors. The Audit Committee is governed by the Audit
Committee Charter adopted by the Board of Directors. A copy of the Audit
Committee Charter is attached as Appendix A to this Proxy Statement.

As set forth in the Audit Committee Charter, the Committee is appointed by the
Board of Directors to, among other duties and responsibilities, provide
assistance to the Board of Directors in fulfilling its oversight responsibility
relating to the Company's financial statements and the financial reporting
processes; the systems of internal accounting and financial controls; the
internal audit function; the annual independent audit of the Company's financial
statements; the adequacy and effectiveness of the Company's financially-related
legal, regulatory, and ethical compliance programs; and any other areas
specified by the Board of Directors of potential significant financial risk to
the Company. The Committee is also responsible for hiring, retaining and
terminating the Company's independent auditors. The Committee reports its
activities to the Board of Directors on a regular basis.

Management has responsibility for the Company's financial statements and
financial reporting processes, including the systems of internal accounting and
financial controls. The independent auditors are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with standards of the Public Company Oversight Board and issuing a
report thereon.

The Committee reviews the Company's financial statements and financial reporting
processes on behalf of the Board of Directors. In fulfilling its
responsibilities, the Committee has met and held discussions with management,
the internal auditors, and the independent auditors. Management represented to
the Committee that the Company's consolidated financial statements were prepared
in accordance with generally accepted accounting principles. The Committee has
reviewed and discussed the audited consolidated financial statements for the
fiscal year ended May 1, 2004 with management and the independent auditors.

The Committee discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, "Communications with Audit
Committees," as amended. In addition, the Committee has discussed with the
independent auditors the auditors' independence from the Company and its
management, including the letter regarding its independence provided to the
Committee as required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees."

The Committee also discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
met with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, the evaluations of the
Company's internal controls and the overall quality of the Company's financial
reporting. The Committee also reviewed and discussed with the independent
auditors the fees paid to the independent auditors.

The Company's Chief Executive Officer and Chief Financial Officer also reviewed
with the Committee the certifications that each such officer will file with the
Securities and Exchange Commission (SEC) pursuant to the requirements of
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and the rules and
regulations issued by the SEC pursuant thereto. Management also reviewed with
the Committee the policies and procedures it has adopted to ensure the accuracy
of such certifications.

Based upon, and in reliance upon, the Committee's discussions with management
and the independent auditors referred to above, the Committee's review of the
representations of management, the report of the independent auditors, and the
certifications of the Chief Executive Officer and Chief Financial Officer
pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, the
Committee recommended to the Board of Directors (and the Board has approved)
that the audited consolidated financial statements be included in the Company's
Annual Report on Form 10-K for fiscal year 2004 (fiscal year ended May 1, 2004)
for filing with the SEC.

BY THE MEMBERS OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF HANDLEMAN
COMPANY

Eugene A. Miller, Chairman
Sandra E. Peterson
Dr. Irvin D. Reid
Ralph J. Szygenda

PERFORMANCE GRAPH

The line graph below compares the cumulative total shareholder return on the
Company's common stock with the cumulative total return of the Russell 2500
Index and the S&P 500 Index, for the past five-year period.

[PERFORMANCE GRAPH]

1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----

Handleman 100 85 80 87 120 160
Russel 2500 100 123 120 124 104 142
S&P 500 100 109 94 81 70 83

The graph assumes an investment of $100 in the Company's common stock, the
Russell 2500 Index and the S&P 500 Index as of the last day of fiscal 1999. The
graph shows the cumulative total return for the Company's last five fiscal years
as compared to these indices.

The Company does not believe it feasible to provide a peer group comparison
because any entities that could conceivably be deemed "peers" are either
privately-held companies or subsidiaries or divisions of larger publicly-held
companies. Therefore, the Company has selected the Russell 2500 Index on the
basis of similar market capitalization.

EXECUTIVE COMPENSATION

The following table sets forth information for each of the fiscal years ended
May 1, 2004, May 3, 2003 and April 27, 2002 concerning the compensation of the
Company's Chief Executive Officer and each of the Company's other four most
highly compensated Executive Officers as of May 1, 2004 (collectively, the
"named Executive Officers") whose annual salary and bonus exceeded $100,000.

ANNUAL COMPENSATION (a), (b) LONG-TERM COMPENSATION AWARDS
----------------------------------------- --------------------------------------
(c) OPTIONS/SARs (d)
OTHER ANNUAL PERFORMANCE UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION SHARE GRANTS SECURITIES COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) (#) ($)
--------------------------- ------ ------- ------ ------------ ------------ ------------- ------------

Stephen Strome 2004 642,300 300,000 -- 58,800 27,200 3,500
Chairman of the Board and 2003 617,300 425,000 -- 54,400 71,100 5,673
Chief Executive Officer 2002 601,308 250,000 -- 54,400 71,100 3,619

Gerardo I. Lopez 2004 342,300 125,000 -- 14,900 6,900 4,106
Senior Vice President and 2003 318,846 150,000 -- 10,000 15,000 6,143
President of Handleman 2002 288,816 116,167 82,684(e) 9,400 12,300 1,231
Entertainment Resources

Thomas C. Braum, Jr. 2004 230,800 125,000 -- 14,900 6,900 3,785
Senior Vice President and 2003 205,384 130,000 -- 9,400 11,000 4,202
Chief Financial Officer 2002 180,579 60,000 -- 9,400 12,300 3,780

Robert J. Sausa 2004 246,900 79,400 -- 8,600 4,000 3,627
Senior Vice President and 2003 236,923 108,027 -- 4,700 7,500 5,573
Chief Information Officer 2002 226,927 30,001 -- 4,700 6,200 1,431

Mark J. Albrecht 2004 191,900 65,400 -- 8,600 4,000 2,469
Senior Vice President, 2003 181,900 80,800 -- 4,700 6,200 4,069
Human Resources and 2002 171,500 31,000 -- 4,700 6,200 3,816
Organizational Development

(a) Salary deferred by the named Executive Officers pursuant to the Company's
Salary Deferral Plan(the "401(k) Plan") follows:

2004 2003 2002
------ ------- ------

Stephen Strome $7,000 $11,346 $7,570
Gerardo I. Lopez 8,212 12,287 2,463
Thomas C. Braum, Jr. 7,569 8,404 7,738
Robert J. Sausa 7,253 11,146 3,115
Mark J. Albrecht 4,938 8,138 7,725

(b) Other annual compensation did not exceed the lesser of $50,000 or 10% of
individual cash compensation for any named Executive Officer other than
Mr. Lopez.

(c) Represents grants of performance shares of Handleman Company common stock,
which would be distributed if certain free cash flow targets are achieved
by May 1, 2004, April 30, 2005 and April 29, 2006, respectively, for the
fiscal 2002, fiscal 2003 and fiscal 2004 performance grants, respectively.

(d) Represents amounts contributed to the named Executive Officers' 401(k)
Plan accounts for the Company matching of employee contributions.

(e) Includes net payments to or on behalf of Mr. Lopez of $600 for certain
life insurance, $8,750 for automobile benefits, $7,797 for financial
consulting and $65,537 for housing costs.

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides details regarding stock options granted to the
named Executive Officers in the last fiscal year.

(d)
(a) POTENTIAL REALIZABLE VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OPTIONS GRANTED (b) (c) STOCK PRICE APPRECIATION FOR OPTION TERM
OF OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- --------------- -------------- ---------- -- ---

Stephen Strome 27,200 11.0% $16.925 June 9, 2013 $289,518 $733,695

Gerardo I. Lopez 6,900 2.8 16.925 June 9, 2013 73,444 186,121

Thomas C. Braum, Jr. 6,900 2.8 16.925 June 9, 2013 73,444 186,121

Robert J. Sausa 4,000 1.6 16.925 June 9, 2013 42,576 107,896

Mark J. Albrecht 4,000 1.6 16.925 June 9, 2013 42,576 107,896

(a) The total number of shares subject to options granted to employees in fiscal
2004 was 246,500.

(b) The exercise price (which corresponded to the fair market value of the
Company's common stock on the date of grant) may be paid in cash, or, with
the consent of the Compensation Committee in such other manner as the
Committee determines is appropriate in its sole discretion.

(c) The options become exercisable up to 33 1/3% on or after June 10, 2004 and
prior to June 9, 2005; up to 66 2/3% on or after June 10, 2005 and prior to
June 9, 2006; up to 100% on or after June 10, 2006.

(d) Potential Realizable Value assumes that the Company's common stock
appreciates in value from the date of grant until the end of the 10-year
option term at the annual rate specified (5% and 10%). "Potential Realizable
Value" is net of the option exercise price. The exercise price of options
granted in fiscal 2004 is based on the fair market value of the stock on the
date of grant. The assumed rates of appreciation are specified in rules of
the Securities and Exchange Commission, and do not represent the Company's
estimate or projection of future stock price. Actual gains, if any,
resulting from stock option exercises are dependent on the future
performance of the Company's common stock and overall stock market
conditions, as well as the optionee's continued employment through the
exercise/vesting period. There can be no assurance that the amounts
reflected in this table will be achieved.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

The following table sets forth information concerning stock option exercises by
the named Executive Officers during the fiscal year ended May 1, 2004, as well
as the value of unexercised options held by such persons on May 1, 2004. This
table also includes the number of shares covered by both exercisable and
non-exercisable stock options as of the last day of the fiscal year.

(b)
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END (#) AT FISCAL YEAR END ($)
ACQUIRED ON (a) EXERCISABLE (E)/ EXERCISABLE (E)/
NAME EXERCISE (#) VALUE REALIZED UNEXERCISABLE (U) UNEXERCISABLE (U)
---- ------------ -------------- ------------------------------ ----------------------

Stephen Strome 110,362 (c) $1,181,118 163,859 (E) $1,401,930 (E)
41,844 (U) 354,579 (U)

Gerardo I. Lopez 33,200 (c) 154,483 11,400 (E) (d) 93,987 (E) (d)
9,600 (U) 79,116 (U)

Thomas C. Braum, Jr. 14,534 (c) 63,409 10,066 (E) (d) 79,737 (E) (d)
8,277 (U) 64,980 (U)

Robert J. Sausa 22,634 202,516 5,886 (E) 48,051 (E)
5,180 (U) 41,680 (U)

Mark J. AIbrecht 9,866 (c) 63,954 5,466 (E) (d) 43,493 (E) (d)
4,735 (U) 36,392 (U)

(a) Values are calculated by subtracting the aggregate exercise price from the
fair market value of the stock as of exercise date.

(b) Assumes, for all unexercised in-the-money options, the difference between
the exercise price and the market price of the Company's common stock as of
May 1, 2004 ($22.51 per share).

(c) 81,123; 27,602; 12,492 and 3,387 shares, of the exercised options were
turned into the Company by Messrs. Strome, Lopez, Braum and Albrecht,
respectively, in payment of the exercise price and tax liability incident to
the exercise of the options.

(d) The number of unexercised options shown above as exercisable by Messrs.
Lopez, Braum and Albrecht includes 11,400; 10,066 and 5,466 shares,
respectively, which were exercised by Messrs. Lopez, Braum and Albrecht
after fiscal year end. The value of unexercised, in-the- money options shown
above as exercisable by Messrs. Lopez, Braum and Albrecht includes $93,987;
$79,737 and $43,493, respectively, with respect to the options that were
exercised after fiscal year end.

PENSION PLAN TABLE

The Company has a pension plan (the "plan") covering all employees of the
Company who have reached the age of 21 and completed one year of service, except
for employees covered by a collective bargaining agreement which does not
provide for plan coverage. The plan provides pension benefits, death benefits
and disability benefits for covered employees. For the fiscal year ended May 1,
2004, employees with five or more years of service were entitled to monthly
pension benefits beginning at normal retirement age (65). The computation of
benefits under the plan is based upon a formula which takes into consideration
retirement age, years of service up to 30 years, average annual compensation
during the highest five consecutive year period within the 10 years preceding
retirement, and the average of the taxable wage base for Social Security
purposes over the employee's career. The plan permits early retirement at ages
55-64 for employees with 10 or more years of service. A death benefit equal to a
portion of the employee's accrued benefit is paid to the employee's spouse if
the employee dies after becoming vested under the plan. An employee with 10 or
more years of service whose employment by the Company terminates prior to his or
her normal retirement date due to his or her permanent and total disability is
entitled to receive a disability retirement benefit.

The compensation covered by the plan includes all earnings from the Company as
reported on the employee's W-2 form, for base pay plus overtime and bonus
payments only, plus salary deferrals under the Company's 401 (k) Plan, up to a
maximum of $205,000 for calendar year 2004.

The following table illustrates current annual benefits payable under the plan
upon retirement at age 65 to persons in certain compensation and years of
service classifications. The benefits are computed on the basis of a straight
life annuity and are not subject to deductions for social security or other
offset amounts.

FINAL AVERAGE 10 YEARS 20 YEARS 30 YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE
------------- ---------- ---------- ----------

$200,000* $24,992 $49,983 $74,975

*Compensation which may be considered for any purpose under a qualified pension
plan is limited for calendar year 2004 to $205,000.

The Internal Revenue Code limits the benefits which can be paid from any funded
pension plan that qualifies for federal tax exemption. The amount for calendar
year 2004 is $165,000.

As of May 1, 2004, the credited years of service under the plan for the named
Executive Officers were as follows: 26 for Stephen Strome; four for Gerardo I.
Lopez; 19 for Thomas C. Braum, Jr.; four for Robert J. Sausa and five for Mark
J. Albrecht.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE

The Company sponsors a Supplemental Executive Retirement Plan (the "SERP")
covering a select group of management employees of the Company. The SERP
provides supplemental retirement income, and death and disability benefits.
Covered employees with five or more years of service are entitled to monthly
retirement income beginning at normal retirement age (65). The SERP permits
early retirement at ages 55-64 for employees with 10 or more years of service.
The computation of benefits under the SERP is based upon a formula which takes
into consideration retirement age, years of service up to a maximum of 30 years,
and average annual compensation during the highest five consecutive years within
the 10 years preceding retirement. A death benefit equal to a portion of the
employee's accrued benefit is paid to the employee's spouse if the employee dies
after becoming vested under the SERP. An employee with 10 or more years of
service whose employment by the Company terminates prior to his or her normal
retirement date due to his or her total and permanent disability is entitled to
receive a disability retirement benefit.

The compensation covered by the SERP includes all earnings from the Company as
reported on the employee's W-2 form, for base pay, overtime, and bonus payments,
plus salary deferrals. No maximum applies to compensation covered under the
SERP.

The benefit amount calculated under the formula is computed on the basis of a
straight life annuity and is subject to an offset by benefits provided under the
pension plan.

The following table illustrates current annual benefits payable under the SERP
upon normal retirement at age 65 to persons in certain compensation and years of
service classifications. These benefits are in addition to benefits payable
under the Company pension plan.

FINAL AVERAGE 10 YEARS 20 YEARS 30 YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE
------------- ---------- ---------- ----------

$200,000 $10,008 $20,017 $30,025
400,000 45,008 90,017 135,025
600,000 80,008 160,017 240,025
800,000 115,008 230,017 345,025
1,000,000 150,008 300,017 450,025

As of May 1, 2004 the credited years of service under the SERP for the named
Executive Officers were as follows: 26 for Stephen Strome; four for Gerardo I.
Lopez; 19 for Thomas C. Braum, Jr.; four for Robert J. Sausa and five for Mark
J. Albrecht.

CHANGE IN CONTROL AGREEMENTS

The Company has entered into Change in Control Agreements (the "Agreements")
with Stephen Strome, Gerardo I. Lopez and Thomas C. Braum, Jr. in the event
their employment is terminated as a result of, or in the connection with, a
change in control (as defined in the Agreements). The Agreements expire December
31, 2004 and are automatically renewed to December 31 of each subsequent year
unless and until the Company or the named Executive Officer sends a written
notice of termination to the other party by September 1.

In event of termination of employment or other specified changes in the
employment relationship within 24 months following a change in control, the
Agreements generally provide for payments of accrued salary and bonus not paid
plus a severance payment equal to the sum of base salary and the average of the
annual bonus accrued during the three fiscal years prior to the termination date
times 2.99. The

Agreements also entitle Messrs. Strome, Lopez and Braum to continue
participation in the Company's life and health insurance benefits for 36 months
following the termination date.

In addition, all restrictions on any outstanding incentive awards (including
restricted stock and rights to performance shares) granted to Messrs. Strome,
Lopez and Braum under any incentive plan or arrangement shall lapse and such
incentive award shall become 100% vested and all stock options and stock
appreciation rights granted to Messrs. Strome, Lopez and Braum under any
incentive plan or arrangement will become 100% vested and immediately
exercisable.

Based on current salaries and prior bonuses, if Messrs. Strome, Lopez or Braum
had terminated their employment as of May 1, 2004 under circumstances entitling
them to severance pay as described above, they would have been entitled to
receive lump sum cash payments of $2,915,300; $1,436,400 and $1,031,600,
respectively.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below reflects the number of shares beneficially owned by (a) each
Director of the Company; (b) each Executive Officer of the Company named in the
Summary Compensation Table; (c) all Directors and Executive Officers as a group;
and (d) each person or group owning more than 5 percent of the outstanding
shares of Handleman Company common stock. Unless otherwise noted, the
information is stated as of July 12, 2004, and the beneficial owners exercise
sole voting and/or investment power over their shares.

NAME OF BENEFICIAL OWNER SHARES OWNED PERCENT OF CLASS
------------------------ ------------ ----------------

Elizabeth A. Chappell........................................ 18,549 (b) *
James B. Nicholson........................................... 18,714 (b) *
Eugene A. Miller............................................. 4,952 (b) *
Sandra E. Peterson........................................... 8,609 (b) *
Dr. Irvin D. Reid............................................ 5,785 (b) *
Lloyd E. Reuss............................................... 17,481 (b) *
Stephen Strome............................................... 362,861 (a) 1.5%
Ralph J. Szygenda............................................ 2,305 (b) *
Gerald I. Lopez.............................................. 18,488 (a) *
Thomas C. Braum, Jr.......................................... 21,845 (a) *
Robert J. Sausa.............................................. 9,841 (a) *
Mark J. Albrecht............................................. 7,299 (a) *
All Directors and Executive Officers as a Group (13 persons). 502,366 (c) 2.1%
Barclays Global Investors.................................... 1,945,315 (d) 8.3%
Elm Ridge Capital Management, LLC............................ 1,852,000 (d) 7.9%
LSV Asset Management......................................... 1,328,777 (d) 5.7%
Jana Partners LLC............................................ 1,259,700 (d) 5.4%
Dimensional Fund Advisors.................................... 1,229,811 (d) 5.3%

(a) The number of shares shown above as beneficially owned by Messrs. Strome and
Sausa includes 163,859 and 5,886 shares, respectively, which they have the
right to acquire within 60 days of July 12, 2004 pursuant to the Company's
stock option plans (assuming, in certain instances, that the stock price
reaches certain levels) and 2,107; 899; 1,815; 1,468 and 1,813 shares, which
have been credited to each of Messrs. Strome, Lopez, Braum, Sausa and
Albrecht, respectively, under the Company's 401 (k) Plan.

(b) The number of shares shown above as beneficially owned by Ms. Chappell, Mr.
Nicholson, Mr. Miller, Ms. Peterson, Dr. Reid, Mr. Reuss and Mr. Szygenda
includes 9,000; 7,500; 2,500; 5,000; 2,500; 7,167 and 833 shares,
respectively, which they have the right to acquire within 60 days of July
12, 2004 pursuant to the Company's stock option plans (assuming, in certain
instances that the stock price reaches certain levels).

(c) All Directors and Executive Officers as a group (13 persons) beneficially
owned 502,366 shares (2.1%) of the Company's outstanding common stock as of
July 12, 2004, including 206,512 shares which they have the right to acquire
within 60 days of that date pursuant to the Company's stock option plans and
9,433 shares which have been credited to them under the 401 (k) Plan.

(d) Based on information filed with the Securities and Exchange Commission, a)
Barclays Global Investors, 45 Fremont Street, 17th Floor, San Francisco,
California 94105, owns 1,945,315 shares (8.3%) of the Company's outstanding
common stock; b) Elm Ridge Capital Management, LLC, 747 3rd Avenue, 33rd
Floor, New York, New York 10017, owns 1,852,000 shares (7.9%) of the
Company's outstanding common stock; c) LSV Asset Management, 1 North Wacker
Drive, Suite 4000, Chicago, Illinois 60606, owns 1,328,777 shares (5.7%) of
the Company's outstanding common stock; c) Jana Partners LLC, 201 Post
Street, Suite 1000, San Francisco, California 94108, owns 1,259,700 shares
(5.4%) of the Company's outstanding common stock; and e) Dimensional Fund
Advisors, 1299 Ocean Avenue, Santa Monica, California 90401, owns 1,229,811
shares (5.3%) of the Company's outstanding common stock. Management does not
know of any other person who, as of July 12, 2004, beneficially owned more
than 5% of the Company's common stock.

* Less than 1 % of the Company's outstanding shares of common stock.

II. PROPOSAL TO APPROVE THE HANDLEMAN COMPANY 2004 STOCK PLAN

The Board of Directors proposes that the shareholders approve the Company's 2004
Stock Plan (the "Plan"). Under the Plan, stock options (both Nonqualified and
Incentive Options, as defined in the Plan), stock appreciation rights,
restricted stock, and rights to obtain performance shares or performance units
(cash awards measured by reference to the Company's stock price) may be granted
to key employees and non-employee Directors (the "Participants") of the Company
or of any corporation in which the Company owns stock possessing more than 25%
of the combined voting power of all classes of stock (a "Subsidiary"). The stock
options, stock appreciation rights, restricted stock, and rights to obtain
performance shares and performance units to be granted or awarded under the Plan
relate to shares of the Company's common stock.

The Board of Directors adopted the Plan on July 16, 2004 subject to approval by
the Company's shareholders. The Board of Directors believes that it is in the
best interests of the Company and its shareholders to be able to offer stock
options, stock appreciation rights, restricted stock and rights to obtain
performance shares and performance units to key employees (including officers
who are also key employees) and outside Directors in accordance with the terms
of the Plan in order to strengthen the mutuality of interests of key employees
and outside Directors with the interests of the shareholders of the Company and
to help the Company and its Subsidiaries attract and retain key employees and
outside Directors. Approval of the Plan, however, could have an "anti-takeover"
effect, particularly with regard to the award of restricted stock and
performance shares, which generally will require no payment from the employee.

The Plan contains a number of provisions that the Board believes are consistent
with the interests of shareholders and sound corporate governance practices.
These include:

NO STOCK OPTION REPRICINGS. The Plan prohibits the repricing of stock
options without the approval of shareholders. This provision applies to both
direct repricings - lowering the exercise price of a stock option - and indirect
repricings - canceling an outstanding stock option and granting a replacement
stock option with a lower exercise price.

NO ANNUAL "EVERGREEN" PROVISION. The Plan does not contain an automatic
provision that replenishes the number of shares reserved under the Plan based on
the number or percentage of outstanding shares. Rather, a fixed number of shares
are allocated for issuance under the Plan, requiring shareholder approval of any
additional allocation of shares under the Plan.

NO DISCOUNT STOCK OPTIONS. The Plan prohibits the grant of a stock option
with an exercise price of less than the fair market value of the Company's
shares on the date the stock option is granted.

INDEPENDENT COMMITTEE. The Plan will be administered by the Compensation
Committee, which consists of "outside directors" within the meaning of Rule
16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and meets the New York Stock Exchange standard for directors' independence.

The Company's 2001 Stock Option and Incentive Plan, under which 200,611 shares
remained available for award as of July 12, 2004, would continue in effect in
accordance with its terms upon approval of the Plan by the Company's
shareholders.

In order to obtain shareholder approval of the Plan, a majority of the votes
cast by shareholders present, in person or by proxy, at the Annual Meeting of
Shareholders must be cast in favor of the Plan.

A FULL COPY OF THE PLAN IS ATTACHED AS APPENDIX F TO THIS PROXY STATEMENT. THE
MAJOR FEATURES OF THE PLAN ARE SUMMARIZED BELOW, BUT THIS IS ONLY A SUMMARY AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ACTUAL TEXT OF THE PLAN.
CAPITALIZED TERMS NOT OTHERWISE DEFINED HEREIN HAVE THE MEANINGS GIVEN THEM IN
THE PLAN.

ADMINISTRATION

The Plan will be administered by the Compensation Committee of the Board of
Directors of the Company (the "Committee"). The Committee will be comprised of
Directors who meet the "non-employee director" standards of Rule 16b-3 under the
Securities Act of 1934, as amended, or any similar successor rule, the
"independent director" standards of the New York Stock Exchange and the "outside
director" standards under Section 162(m)of the Internal Revenue Code. Subject to
the provisions of the Plan, the Committee will determine, from those eligible to
be Participants under the Plan, the persons to be granted stock options, stock
appreciation rights, restricted stock, and rights to obtain performance shares
and performance units, the amount of stock or rights to be optioned or granted
to each such person, and the terms and conditions of any stock options, stock
appreciation rights, restricted stock and rights to obtain performance shares
and performance units. In addition, the Committee is authorized to interpret the
Plan, to make, amend and rescind rules and regulations relating to the Plan and
to make all other determinations necessary or advisable for its administration,
all subject to the provisions of the Plan.

PLAN PARTICIPANTS

The selection of persons who are eligible to participate in the Plan and grants
and awards to those individuals are determined by the Committee, in its sole
discretion. The only established criterion to determine eligibility under the
Plan is that individuals must be outside Directors or key employees (including
officers who are also key employees) of the Company or any Subsidiary. Each
grant or award under the Plan is to be evidenced by a written agreement which
will contain such provisions as may be approved by the Committee.

SHARES SUBJECT TO GRANT OR AWARD

In general, the Plan limits the maximum number of shares of stock which may be
issued pursuant to restricted stock awards, stock options and performance shares
to 750,000 (of which no more than 500,000 shares may be issued pursuant to
Incentive Options). In addition, the maximum number of stock options, stock
appreciation rights, restricted stock or rights to obtain performance shares or
performance units that can be granted to any Participant during any calendar
year cannot exceed 200,000 shares and the maximum number of shares that can be
granted to any outside Director Participant during a calendar year cannot exceed
10,000 shares.

The number of shares subject to each outstanding stock option, restricted stock
award or performance share right, the option price with respect to outstanding
stock options, the aggregate number of shares remaining available at any time
under the Plan, and the maximum number of shares as to which grants or awards
may be made to an individual Participant during any calendar year will be
subject to adjustment by the Committee to reflect events such as stock
dividends, stock splits, recapitalizations, mergers, consolidations or
reorganizations of or by the Company.

For purposes of computing the total number of shares of stock available for
grants of stock options, restricted stock or performance share awards under the
Plan any shares of stock that were previously subject to grants or awards will
again be available for grants or awards if they are forfeited, terminated,
expire unexercised, are settled in cash or are exchanged for other grants or
awards.

AMENDMENT OR TERMINATION OF THE PLAN

The Board of Directors may, without shareholder approval, terminate or amend the
Plan or any award or agreement pursuant to the Plan at any time, provided the
Board may not, without shareholder approval, amend the Plan so as to increase
the maximum number of shares in the aggregate which are subject to the Plan or
with respect to which grants or awards may be made to individual Participants,
modify the requirements as to eligibility for participation under the Plan or
materially increase the benefits accruing to the Participants under the Plan,
and the Board may not, without consent of the holder of a stock option, stock
appreciation right, restricted stock award or

performance share or performance unit right, alter or amend any stock option,
stock appreciation right, restricted stock, or right to performance shares or
units previously granted or awarded under the Plan (except as specifically
provided in the Plan).

Unless sooner terminated by the Board of Directors, the Plan will terminate on
July 15, 2014, which is 10 years after its adoption by the Board of Directors.
The termination of the Plan will not affect the validity of any stock option,
stock appreciation right, restricted stock award or performance share or
performance unit right outstanding on the date of termination.

STOCK OPTIONS

GRANT AND EXERCISE OF STOCK OPTIONS

Both Incentive Options and Nonqualified Options may be granted under the Plan.
An Incentive Option is intended to qualify as an incentive stock option within
the meaning of Section 422 of the Code. Any Incentive Option granted under the
Plan will have an exercise price of not less than 100% of the fair market value
of the shares on the date on which such option is granted. With respect to an
Incentive Option granted to a Participant who owns more than 10% of the total
combined voting stock of the Company or of any parent or Subsidiary of the
Company, the exercise price for such option must be at least 110% of the fair
market value of the shares subject to the option on the date the option is
granted. A Nonqualified Option granted under the Plan (i.e., an option to
purchase the Common Stock that does not meet the Code's requirements for
Incentive Options) must have an exercise price of not less than 100% of the fair
market value of the shares subject to the option on the date on which the option
is granted.

The Committee is to specify in its grants of stock options the time or times at
which such options will be exercisable. At the time of exercise of any option
granted pursuant to the Plan, the Participant must pay the full option price of
all shares purchased in cash or, with the consent of the Committee, (i) in
common stock of the Company, (ii) by the Company retaining from the shares to be
delivered upon exercise of the stock option that number of shares having a fair
market value equal to the option price of the number of shares with respect to
which the Participant exercises the option, (iii) by a broker delivering to the
Company full payment for the shares with respect to which the option is
exercised from the proceeds of the broker's sale of, or loan against, some or
all of the shares, (iv) in the event the Company has in effect a stock
repurchase program, by the Company paying to the Participant in cash the
difference between the exercise price and the fair market value of the number of
shares with respect to which the Participant exercises the option, less the
appropriate amount of withholding taxes, or (v) in such other manner as the
Committee determines is appropriate, in its sole discretion. The fair market
value of stock with respect to which Incentive Options are exercisable for the
first time in any one year by a Participant under the Plan cannot exceed $
100,000.

No stock option may be exercised prior to six months (12 months for an outside
Director) from the date of grant unless the Participant retires, dies or becomes
disabled prior thereto.

TERM OF STOCK OPTIONS

No stock option granted under the Plan may remain outstanding for more than 10
years from the date of grant. With respect to an Incentive Option granted to a
Participant who, at the time of the grant, owns more than 10% of the total
combined voting stock of all classes of stock of the Company or of any parent or
Subsidiary, such option will, however, expire not more than five years after the
date of the grant.

CONTINUATION OF EMPLOYMENT

Unless the Committee in its discretion determines otherwise, stock options
granted under the Plan may be exercised only while a Participant is an employee
of the Company or a Subsidiary (or an outside Director). If the Participant's
employment is terminated, the Committee may, in its

discretion and on certain terms and conditions specified in the Plan, extend the
period of time in which the stock options may be exercised. Nevertheless, no
stock option is to be exercisable after its expiration date and a stock option
may only be exercised after termination of the Participant's employment to the
extent that it would have been exercisable on the date of termination of the
Participant's employment, provided, however, that if the termination of
employment (or of an outside Director's service as a Director) is due to death
or disability, all stock options granted to such Participant thereupon become
exercisable in full, and provided further, that if the termination of a
Participant's employment (or of an outside Director's service as a Director) is
due to the Participant's retirement at a retirement age permitted under the
Company's retirement plan, the Participant's stock options will become
exercisable following the termination of employment or service as a Director in
accordance with the provisions established at the time of grant in the relevant
stock option agreement or agreements.

The Plan provides that, as a condition to granting a stock option under the
Plan, the Committee may require that the prospective Participant agree in
writing to remain in the employ of the Company or a Subsidiary for a designated
minimum period from the date of the granting of such stock option and may
further require that any Participant agree in writing to comply with any
confidentiality, non-solicitation, non-competition and non-disparagement
provisions. Nothing in the Plan or any grant or award confers any right to
continued employment.

NON-TRANSFERABILITY OF STOCK OPTIONS

No stock option granted under the Plan is permitted to be transferred by a
Participant other than by will or by the laws of descent and distribution, and
such stock option may be exercisable, during the lifetime of the Participant,
only by the Participant. The Committee may, however in its sole discretion and
subject to such terms and conditions as it may prescribe, permit a Participant
to transfer a Nonqualified Option.

REPRICING OF STOCK OPTIONS

No decrease in the option price (through amendment, cancellation or replacement
grants, or any other means) of any stock option previously granted to a
Participant where such decrease would be deemed to be a repricing thereof in
accordance with Item 402(i) of Regulation S-K, or any similar or successor
provision, promulgated by the Securities and Exchange Commission, shall be valid
or effective unless such repricing shall be approved by a majority of the
shareholders of the Company who vote on such repricing within 12 months of the
date of such repricing.

STOCK APPRECIATION RIGHTS

Stock appreciation rights entitle a Participant to receive upon exercise an
amount equal to the number of shares of Common Stock subject to the award
multiplied by the excess of the fair market value of a share of Common Stock at
the time of exercise over the grant price of such a share of Common Stock. Stock
appreciation rights granted to Participants may relate to a specific stock
option granted under the Plan (a tandem stock appreciation right), but may also
be granted without relation to a stock option (a free-standing stock
appreciation right).

A free-standing stock appreciation right may be granted by the Committee at any
time and will become exercisable as determined by the Committee. The initial
value per share of Common Stock of a free-standing stock appreciation right will
be determined at the time of grant by the Compensation Committee, but will not
be less than the fair market value of a share of Common Stock on the grant date.

A tandem stock appreciation right related to a Nonqualified Option may be
granted at the same time such option is granted or at any time prior to the
exercise, termination or expiration of the option. A tandem stock appreciation
right related to an Incentive Option must be granted at the same time the
related Incentive Option is granted. A tandem stock appreciation right will be
exercisable only when the related stock option is exercisable, will be forfeited
when the related stock option is forfeited and may expire no later than the
expiration of the related stock option.

RESTRICTED STOCK

Subject to the terms of the Plan, the Committee may award shares of restricted
stock to Participants. Generally, a restricted stock award will not require the
payment of any share price by the Participant, but will call for the transfer of
shares to the Participant subject to forfeiture, without payment of any
consideration by the Company, if the Participant's employment terminates during
a "restricted" period (which must be at least six months) specified in the award
of the restricted stock. If the Participant's employment terminates as a result
of his or her death or permanent disability or retirement at a permitted
retirement age, the restrictions shall lapse. Although the Participant is not
permitted to sell, transfer, pledge, hypothecate or otherwise encumber shares
acquired upon the grant of restricted stock during the restricted period, the
Participant has the right to vote and receive any dividends payable with respect
to such shares. No action by the Committee confers upon any Participant any
right to continuation of employment with the Company or a Subsidiary. The
Committee may also prescribe other terms and conditions in connection with the
award of restricted stock.

PERFORMANCE SHARES AND PERFORMANCE UNITS

Subject to the terms of the Plan, the Committee may grant to a Participant the
right to obtain performance shares or performance units, or a combination
thereof. The Participant's right to obtain performance shares or performance
units is subject to the attainment of one or more performance goals over a
performance period prescribed by the Committee. The performance goal applicable
to an award to a Participant of the right to obtain performance shares or
performance units would be based upon free cash flow and/or cash flow return on
investment of the Company, a Subsidiary or a division or unit thereof. The
performance goal may also be based upon stock price, market share, sales,
revenues, earnings per share, return on equity, total shareholder return, costs,
net income and/or margins of the Company, a Subsidiary or a division or unit
thereof. The specific targets and other details of the performance goal are to
be established by the Committee in its discretion.

The performance goal applicable to an award to a Participant of the right to
obtain performance shares or performance units shall be established by the
Committee in writing at any time during the period beginning on the date of the
award and ending on the earlier of (i) ninety (90) days after the commencement
of the performance period applicable to the award, or (ii) expiration of the
first 25% of the performance period; provided, however, that there must be
substantial uncertainty whether a performance goal will be attained at the time
it is established by the Committee.

Unless otherwise determined by the Committee in the case of a Participant who
dies or becomes permanently disabled, performance shares and performance units
shall be issued to a Participant only after (i) expiration of the performance
period and attainment of the performance goal applicable to the award, and (ii)
issuance of a written certification by the Committee (including approved minutes
of the meeting of the Committee at which the certification is made) that the
performance goal and any other material terms of the award have been attained or
satisfied.

No Participant shall have any of the rights of a shareholder of the Company in
respect of the shares covered by a performance share award until the actual
issuance of the shares to said Participant and, prior to such issuance, no
adjustments shall be made for dividends, distributions or other rights in
respect of such shares, except as provided in the Plan.

In its discretion and subject to such terms and conditions as it may impose, the
Committee may permit a Participant to elect to defer receipt of performance
shares or of the cash attributable to a performance unit to a time later than
the time the shares or cash otherwise would be issued or paid to the
Participant.

In the discretion of the Committee, in lieu of settling a performance share
award by issuance of shares of common stock of the Company to a Participant, all
or a portion of the award may be settled by payment of cash to the Participant
in an amount equal to the then fair market value of the otherwise issuable
shares; provided, however, that the amount of cash paid to any Participant
during any calendar year in settlement of a performance share award shall not
exceed $ 1,000,000.

In its discretion, the Committee may subject a performance share or performance
unit award to a Participant to any other terms or conditions not inconsistent
with the foregoing, including, without limitation, a requirement that the
Participant remain an employee of the Company or a Subsidiary (including at or
above a specified salary grade) for the entire performance period applicable to
the award.

CHANGE IN CONTROL

Notwithstanding any other provision of the Plan or any provision of a grant or
award agreement, in the event the Committee determines that there has been or
will be a change in control of the Company or of any Subsidiary, the Committee
may provide for any treatment of outstanding stock options, stock appreciation
rights, restricted stock, performance share or performance unit grants or awards
which it determines, in its discretion, to be appropriate. Such treatment may
include, without limitation, acceleration of vesting of stock options or stock
appreciation rights, release of restrictions applicable to restricted stock, or
deeming performance share or performance unit awards to have been earned. In
determining whether there has been or will be a change in control of the
Corporation or of any Subsidiary, the Committee may utilize a definition it
deems appropriate of a change in control contained in any existing agreement
between the Corporation or a Subsidiary and one of its senior executives.

FEDERAL INCOME TAX CONSEQUENCES

The rules governing the tax treatment of stock options, stock appreciation
rights, restricted stock and performance shares and performance units are quite
technical. Therefore, the description of federal income tax consequences set
forth below is necessarily general in nature and does not purport to be
complete. Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the tax consequences under applicable state and local income tax laws
may not be the same as under the federal income tax laws.

INCENTIVE OPTIONS

If the Participant makes no disposition of the shares acquired pursuant to
exercise of an Incentive Option within one year after the transfer of shares to
such Participant and within two years from the grant of the option, such
Participant will realize no taxable income as a result of the grant or exercise
of such option, and any gain or loss that is subsequently realized may be
treated as long-term capital gain or loss, as the case may be. Under these
circumstances, the Company will not be entitled to a deduction for federal
income tax purposes with respect to either the issuance of such Incentive
Options or the transfer of shares upon their exercise.

If shares acquired upon exercise of Incentive Options are disposed of prior to
the expiration of the above time periods, the Participant will recognize
ordinary income in the year in which the disqualifying disposition occurs, the
amount of which will generally be the lesser of (i) the excess of the market
value of the shares on the date of exercise over the option price, or (ii) the
gain recognized on such disposition. Such amount will ordinarily be deductible
by the Company for federal income tax purposes in the same year, provided that
the amount constitutes reasonable compensation and that the Company satisfies
any applicable federal income tax withholding requirements. In addition, the
excess, if any, of the amount realized on a disqualifying disposition over the
market value of the shares on the date of exercise will be treated as capital
gain.

NONQUALIFIED OPTIONS

A Participant who acquires shares by exercise of a Nonqualified Option generally
realizes as taxable ordinary income, at the time of exercise, the difference
between the exercise price and the fair market value of the shares on the date
of exercise. Such amount will ordinarily be deductible by the Company in the
same year, provided that the amount constitutes reasonable compensation and that
the Company satisfied certain federal income tax withholding requirements.
Subsequent

appreciation or decline in the value of the shares on the sale or other
disposition of the shares will generally be treated as a capital gain or loss.

RESTRICTED STOCK

A Participant granted shares of restricted stock under the Plan is not required
to include the value of such shares in ordinary income until the first time such
Participant's right in the shares are transferable or are not subject to
substantial risk of forfeiture, whichever occurs earlier, unless such
Participant timely files an election under Section 83(b) of the Code to be taxed
on the receipt of the shares. In either case, the amount of such income will be
equal to the excess of the fair market value of the stock at the time the income
is recognized over the amount (if any) paid for the stock. The Company will
ordinarily be entitled to a deduction, in the amount of the ordinary income
recognized by the Participant, for the Company's taxable year in which the
Participant recognizes such income, provided that the amount constitutes
reasonable compensation and that the Company satisfies certain federal income
tax withholding requirements; provided, however, that no deduction will be
available to the Company to the extent the amount, together with other
compensation payable to the Participant during such taxable year, exceeds
$1,000,000.

PERFORMANCE SHARES

A Participant generally will recognize ordinary income upon receipt of shares of
Common Stock of the Company representing the performance shares (or cash
received in lieu of the shares of Common Stock) in an amount equal to the fair
market value of the earned performance shares at such time. Such amount will
ordinarily be deductible by the Company in the same year, provided that the
amount constitutes reasonable compensation, that the amount constitutes
qualified performance-based compensation under Section 162(m) of the Code, and
that the Company satisfies certain federal income tax withholding requirements.

OTHER AWARDS

In the case of stock appreciation rights and performance units, the Participant
will generally recognize ordinary income in an amount equal to any cash received
on the date of payment. The Company will generally be entitled to a
corresponding tax deduction.

WITHHOLDING PAYMENTS

If, upon exercise of a Nonqualified Option, or upon the award of restricted
stock or the expiration of restrictions applicable to restricted stock, or upon
a disqualifying disposition of shares acquired upon exercise of an Incentive
Option, or upon the receipt of common stock or cash representing performance
shares, stock appreciation rights or performance units, the Company or any
Subsidiary must pay amounts for income tax withholding, then in the Committee's
sole discretion, either the Company will appropriately reduce the amount of
stock or cash to be delivered or paid to the Participant or the Participant must
pay such amount to the Company to reimburse the Company for such payment. The
Committee may permit a Participant to satisfy such withholding obligations by
electing to reduce the number of shares of the common stock delivered or
deliverable to the Participant upon exercise of a stock option, award of
restricted stock or receipt of Common Stock representing the performance shares,
or by electing to tender an appropriate number of shares of the common stock
back to the Company subsequent to exercise of a stock option, award of
restricted stock or such performance shares (with such restrictions as the
Committee may adopt). The Committee may also, in its discretion and subject to
such terms and conditions as it may impose, permit Participants to satisfy
withholding tax obligations by other means.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED 2004 STOCK
PLAN, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.

(This page intentionally left blank)

III. OTHER MATTERS

RELATIONSHIP WITH INDEPENDENT AUDITOR

PricewaterhouseCoopers LLP is the independent auditor for the Company and has
reported on the Company's consolidated financial statements for the fiscal years
ended May 1, 2004 and May 3, 2003. For fiscal years 2004 and 2003, the Company's
independent auditor was appointed by the Board of Directors after receiving
recommendations from the Audit Committee. PricewaterhouseCoopers LLP has been
reappointed by the Audit Committee for fiscal year 2005.

INDEPENDENT AUDITOR FEES

The following table presents fees for professional audit services performed by
PricewaterhouseCoopers LLP for the audit of the Company's annual consolidated
financial statements for fiscal years 2004 and 2003, and for the review of the
Company's interim consolidated financial statements for each quarter in fiscal
years 2004 and 2003, and for tax and all other services performed in fiscal
years 2004 and 2003:

FISCAL YEAR ENDED FISCAL YEAR ENDED
MAY 1, 2004 MAY 3, 2003 (1)
----------------- -----------------

Audit Fees (2)............................... $319,100 $248,700
Audit-Related Fees (3)....................... 265,100 326,600
Tax Fees (4)................................. 101,900 126,300
All Other Fees (5)........................... 2,100 92,300
-------- --------
Total....................... $688,200 $793,900
======== ========

(1) Amounts reported in the Proxy Statement for the October 2003 Annual
Meeting of Shareholders have been reclassed and are now reported on a fees
billed for services rendered basis.

(2) Includes recurring audit of consolidated financial statements including
statutory audits, services to perform an audit in accordance with
Generally Accepted Auditing Standards, and services related to SEC
registration statements and financial reporting.

(3) Audit services related to benefit/pension plans, assistance in financial
due diligence related to mergers and acquisitions, review of impact of new
accounting pronouncements, review of accounting impact for businesses sold
and documentation assistance with Sarbanes-Oxley Section 404.

(4) Includes tax return review and tax planning services.

(5) Review of actuarial assumptions, reports and retiree benefit calculations.

The Audit Committee's practice on pre-approval of services performed by the
independent auditors is to approve all audit services and permissible non-audit
services to be provided, and assess the impact of the service on the auditor's
independence. In addition, the Audit Committee has delegated authority to grant
certain pre-approvals to the Audit Committee Chair. Pre-approvals granted by the
Audit Committee Chair are reported to the full Audit Committee at its next
regularly scheduled meeting.

In fiscal 2004 all audit and non-audit services were pre-approved by the Audit
Committee.

The Audit Committee determined that the non-audit services provided (and the
fees billed for such services) by PricewaterhouseCoopers LLP during fiscal 2004
and 2003 were compatible with maintaining their independence.

Representatives from PricewaterhouseCoopers LLP will be present at the Annual
Meeting of Shareholders and will be provided the opportunity to make a statement
at the meeting if they desire, and will also be available to respond to
appropriate questions.

OTHER PROPOSALS

Neither the Company nor the members of its Board of Directors intend to bring
before the Annual Meeting any matters other than those set forth in the Notice
of Annual Meeting, and they have no present knowledge that any other matters
will be presented for action at the meeting by others. However, if any other
matters properly come before the meeting, it is the intention of the persons
named in the enclosed form of proxy to vote in accordance with their best
judgment.

A shareholder proposal which is intended to be presented at the 2005 Annual
Meeting of Shareholders must be received by the Company at its principal
executive offices by March 14, 2005.

By Order of the Board of Directors,

/s/ Stephen Strome
-----------------------------
Stephen Strome
Chairman and Chief Executive Officer

Dated: August 6, 2004

GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

Q: WHAT IS A PROXY?

A: A proxy is another person that you legally designate to vote your shares.
If you designate someone as your proxy in a written document, that
document also is called a proxy or proxy card.

Q: WHAT IS A PROXY STATEMENT?

A: It is a document that SEC regulations require Handleman Company to give to
you when we ask you to sign a proxy card to vote your shares at the Annual
Meeting. The proxy statement summarizes the information you need to know
to vote your shares.

Q: WHO CAN VOTE?

A: You can vote at the Annual Meeting if you were a shareholder of record as
of the close of business on July 12, 2004. If you own the Company's Common
Stock, then you are entitled to one vote per share.

Q: WHAT IS THE QUORUM REQUIREMENT OF THE ANNUAL MEETING?

A: A majority of the outstanding shares on July 12, 2004 constitutes a quorum
for voting at the Annual Meeting. If you vote or attend the meeting, your
shares will be part of the quorum. On the record date, 23,355,415 shares
of Handleman Company's Common Stock were outstanding.

Q: WHAT AM I VOTING ON?

A. You are voting on two proposals, the first proposal is the election of two
Directors each for a term of three years. The nominees are:

Elizabeth. A. Chappell
Ralph J. Szygenda

The second proposal is to approve the Handleman Company 2004 Stock Plan.
Under the Plan, stock options (both Nonqualified and Incentive Options, as
defined in the Plan), stock appreciation rights, restricted stock, and
rights to obtain performance share or performance award units (cash awards
measured by reference to the Company's stock price) may be granted to key
employees and non-employee Directors of the Company or of any corporation
in which the Company owns stock possessing more than 25% of the combined
voting power of all classes of stock. (Refer to "Proposal to Approve the
Handleman Company 2004 Stock Plan" beginning on page 23).

Q: WHAT ARE THE VOTING RECOMMENDATIONS OF THE BOARD?

A. The Board of Directors is soliciting the proxy and recommends a vote "FOR"
each of its nominees for Directors and "FOR" the approval of the Handleman
Company 2004 Stock Plan.

Q: WHAT IF OTHER MATTERS ARE PRESENTED FOR DETERMINATION AT THE ANNUAL
MEETING?

A: Other than the two proposals described in this proxy statement, the
Company does not expect any other matters to be presented for a vote at
the Annual Meeting. If you grant a proxy, the proxy holders (Eugene A.
Miller, James B. Nicholson and Lloyd E. Reuss) will use their judgment in
voting your shares on other matters that may arise at the meeting.

Q: WHAT VOTE IS REQUIRED TO ELECT THE DIRECTORS?

A: The two individuals who receive the most votes, even if not a majority of
the votes, will be elected.

Q: WHAT SHARES ARE COVERED BY MY PROXY CARD?

A: The shares covered by your proxy card represent shares of Handleman
Company stock you own either as a:

- Shareholder of record;

- Participant in the Company's 401 (k) Plan Handleman stock
fund; or

- Beneficial owner of shares held in street name.

Q: WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A SHAREHOLDER OF RECORD
AND AS A BENEFICIAL OWNER?

A: If your shares are registered directly in your name with Handleman
Company's transfer agent, Mellon Investor Services, you are considered the
"shareholder of record." The Proxy Statement, 2004 Annual Report and proxy
card have been sent directly to you by Handleman Company C/O Mellon
Investor Services.

If your shares are held in a stock brokerage account or by a bank or other
nominee, you are considered the "beneficial owner" of shares held in
street name. The Proxy Statement and 2004 Annual Report have been
forwarded to you by your broker, bank or nominee, which is considered the
shareholder of record. As the beneficial owner, you have the right to
direct your broker, bank or nominee how to vote your shares by using the
voting instruction card included in the mailing or by following their
instructions for voting by telephone or the Internet.

Q: HOW DO I VOTE?

A: You may vote using any of the following methods:

- Proxy card or voting instruction card. Be sure to sign and date the
card and return it in the prepaid envelope. If you are a shareholder
of record and you return your signed proxy card but do not indicate
your voting preferences, the persons named in the proxy card will
vote "FOR" the election of Directors and "FOR" the approval of the
2004 Stock Plan.

- By telephone or the Internet. The telephone and Internet voting
procedures established by Handleman Company for shareholders of
record are designed to authenticate your identity, to allow you to
give your voting instructions and to confirm that these instructions
have been properly recorded. The availability of telephone and
Internet voting for beneficial owners will depend on the voting
process of your broker, bank or nominee. Therefore, we recommend
that you follow the voting instructions in the materials you
receive.

- In person at the Annual Meeting. All shareholders may vote in person
at the Annual Meeting. If you are a beneficial owner of shares, you
must obtain a legal proxy from your broker, bank or nominee and
present it to the inspectors of election with your ballot when you
vote at the meeting.

Q: WHAT IS THE EFFECT OF NOT VOTING?

A: It will depend on how your share ownership is registered. If you own
shares as a shareholder of record and do not return a signed proxy card,
your shares will not count toward the quorum and will not be voted.

If you are a beneficial owner and do not vote, your broker may represent
your shares at the meeting for purposes of obtaining a quorum. In the
absence of your voting instructions, your broker may or may not vote your
shares in its discretion depending on the proposals before the meeting.

Your broker may vote your shares in its discretion and your shares will
count toward the quorum requirement on "routine matters." Regarding
"non-routine matters" your broker may not be able to vote your shares in
its discretion. The election of Directors is a routine matter on which
brokers are permitted to vote on behalf of their clients if no voting
instructions are furnished. The approval of the 2004 Stock Plan is a
non-routine matter on which brokers are not permitted to vote on behalf of
their clients if no voting instructions are furnished.

Q: WHAT CAN I DO IF I CHANGE MY MIND AFTER I VOTE MY SHARES?

A: If you are a shareholder of record, you may revoke your proxy at any time
before it is voted at the Annual Meeting by:

- Sending written notice of revocation to the Corporate Secretary,
Handleman Company, 500 Kirts Boulevard, Troy, MI 48084;

- Submitting a new proxy by telephone, Internet or paper ballot, after
the date of the revoked proxy; or

- Attending the Annual Meeting and voting in person.

If you are a beneficial owner of shares, you may submit new voting
instructions by contacting your broker, bank or nominee. You may also vote
in person at the Annual Meeting if you obtain a legal proxy as described
in the answer to the previous question.

Q: HOW DO PARTICIPANTS IN THE HANDLEMAN COMPANY 401 (k) PLAN VOTE THEIR
SHARES?

A: As a participant in the Handleman Company 401 (k) Plan, you have the right
to direct Fidelity Management Trust Company how to vote the shares of
Handleman Company credited to your account.

You have been sent a Proxy Statement, 2004 Annual Report and proxy card
from Handleman Company C/O Mellon Investor Services. Mellon Investor
Services will transmit your voting instructions to Fidelity Management
Trust Company who will vote the shares on your behalf.

The shares credited to your account will be voted as directed; if the
proxy card is not received by September 6, 2004 the shares credited to
your account will not be voted.

Q: HOW DO SHAREHOLDERS OF RECORD VOTE THEIR SHARES IF THEY ARE ALSO
PARTICIPANTS IN THE HANDLEMAN COMPANY 401 (k) PLAN?

A: Shareholders of record who also own shares in the Handleman Company 401
(k) Plan and maintain the same registration for both accounts will receive
one proxy card for their total shares. The Proxy Statement, 2004 Annual
Report and proxy card have been sent directly to you by Handleman Company
C/O Mellon Investor Services.

For the shares credited to your 401 (k) Plan account Mellon Investor
Services will transmit your voting instructions to Fidelity Management
Trust Company who will vote the shares on your behalf. The shares will be
voted as directed; if your proxy card is not received by September 6, 2004
the shares credited to your 401 (k) Plan account will not be voted.

Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?

A: It means your shares are in more than one account. You should vote the
shares on all your proxy cards. If you are a shareholder of record, we
encourage you to have all of your shares registered in the same name and
address.

To register all your shares in the same name or if you have other
questions about your stock holdings, please contact Mellon Investor
Services by telephone by calling:

U.S. Shareholders: (800) 851-1713

TDD for U.S. Hearing Impaired Shareholders: (800) 231-5469
or (866) 249-2607

Foreign Shareholders: (201) 329-8660

TDD for Foreign Hearing Impaired Shareholders: (201) 329-8354

If you wish to communicate with Mellon Investor Services by e-mail you can
do so by contacting them at shrrelations@.mellinvestor.com.

Shareholders can view their certificate history or make address changes on
Mellon Investor Services website www.melloninvestor.com.

Q: WILL THERE BE A MANAGEMENT PRESENTATION AT THE ANNUAL MEETING?

A: Stephen Strome, Chairman and Chief Executive Officer, will report on the
performance of the Company during fiscal 2004 and respond to questions
from shareholders.

Q: WHO CAN ATTEND THE ANNUAL MEETING?

A: All shareholders of record as of the close of business on July 12, 2004
can attend. Seating, however, is limited. Seating at the Annual Meeting
will be on a first arrival basis.

Q: WHAT DO I NEED TO ATTEND THE ANNUAL MEETING?

A: To attend the Annual Meeting, please follow these instructions:

- To enter the Annual Meeting, bring your proof of ownership and
identification.

- If a broker or other nominee holds your shares, bring proof of
your ownership with you to the Annual Meeting.

Q: CAN I BRING A GUEST?

A: Seating availability at the Annual Meeting is limited.

Q: WHO WILL COUNT THE VOTE?

A: Representatives of Mellon Investor Services will tabulate the votes and
act as inspectors of election at the Annual Meeting.

Q: HOW MUCH DID THIS PROXY SOLICITATION COST?

A: The Company will solicit proxies by mail and will cover the expense of
such solicitation. Georgeson Shareholder Communications Inc. will help us
solicit proxies for all brokers and nominees at a cost of $7,500 plus
out-of-pocket expenses. We may reimburse brokers or other nominees for
reasonable expenses they incur in sending these proxy materials to you if
you are a beneficial owner.

Q: HOW DO I RECOMMEND SOMEONE TO BE A DIRECTOR FOR THE 2005 ANNUAL MEETING?

A: You may recommend any person to be a Director by writing to the Corporate
Secretary of the Company. The Company's by-laws require that shareholders
send written notice no later than March 14, 2005, in order to recommend a
Director for the 2005 Annual Meeting. In accordance with the Company's
by-laws, the notice must set forth (a) as to each person whom the
shareholder proposes to nominate for election (1) the name, age, business,
address and residence address of such person, (2) the principal occupation
or employment of such person, (3) the class and number of shares of the
Company which are beneficially owned by such person and (4) such person's
written consent to being named in the Proxy Statement as a nominee and to
serve as a Director if elected; and (b) as to the shareholder giving the
notice (1) the name and address, as they appear on the Company's books, of
such shareholder and (2) the class and number of shares of the Company
which are beneficially owned by such shareholder.

Q: WHEN ARE SHAREHOLDER PROPOSALS DUE FOR THE 2005 ANNUAL MEETING?

A: Shareholder proposals must be presented by March 14, 2005 to be included
in the Company's proxy materials for the 2005 Annual Meeting.

Q: WHERE CAN I FIND THE CORPORATE GOVERNANCE GUIDELINES FOR HANDLEMAN
COMPANY?

A: A copy of the Corporate Governance Guidelines is attached as Appendix B to
this Proxy Statement.

Q: CAN I ACCESS THE PROXY STATEMENT AND 2004 ANNUAL REPORT ON THE INTERNET
INSTEAD OF RECEIVING PAPER COPIES?

A: This Proxy Statement and the 2004 Annual Report are located on Handleman
Company's web site. Shareholders can access future Proxy Statements and
Annual Reports on the Internet instead of receiving paper copies in the
mail.

If you are a shareholder of record, you can choose this option by marking
the appropriate box on your proxy card or by following the instructions if
you vote by telephone or the Internet. If you choose to access future
Proxy Statements and Annual Reports on the Internet, you will receive a
proxy card in the mail next year with instructions containing the Internet
address for those materials. Your choice will remain in effect until you
advise Handleman Company otherwise.

If you are a beneficial owner, please refer to the information provided by
your broker, bank or nominee for instructions on how to elect to access
future Proxy Statements and Annual Reports on the Internet. Most
beneficial owners who elect electronic access will receive an e-mail
message next year containing the Internet address for access to the Proxy
Statement and Annual Report.

Q: HOW DO I OBTAIN MORE INFORMATION ABOUT HANDLEMAN COMPANY?

A: To obtain additional information about Handleman Company, you may:

- Contact the Vice President, Investor Relations, at
1-248-362-4400, extension 211;

- Go to the website at www.handleman.com; or

- Write to:
Handleman Company
Attention: Investor Relations
500 Kirts Boulevard
Troy, MI 48084

PLEASE VOTE. YOUR VOTE IS VERY IMPORTANT.
PROMPTLY RETURNING YOUR PROXY WILL HELP TO REDUCE THE COST OF THIS SOLICITATION.

APPENDIX A

CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF HANDLEMAN COMPANY

This Charter sets forth the duties and responsibilities of the Audit Committee
(the "Committee") of the Board of Directors (the "Board") of Handleman Company
(the "Company").

MISSION STATEMENT

The Audit Committee's mission is to assist the Board in fulfilling its oversight
responsibility relating to the Company's financial statements and the financial
reporting processes; the systems of internal accounting and financial controls;
the internal audit function; the annual independent audit of the Company's
financial statements; the adequacy and effectiveness of the Company's
financially-related legal, regulatory, and ethical compliance programs; and any
other areas specified by the Board of potential significant financial risk to
the Company.

COMPOSITION

The Committee is established by the Board and will consist of three or more
members, with the exact number being recommended by the Corporate Governance and
Nominating Committee. All members must be independent of the management of the
Company, and free of any relationship that would interfere with their exercise
of independent judgment as a Committee member. Each of the members of the
Committee will be (i) an "independent director" as defined under the rules of
the New York Stock Exchange, as may be amended from time to time (ii) a
"non-employee director," as defined in Rule 16b-3 promulgated under Section 16
of the Securities and Exchange Act of 1934, as amended, and (iii) an "outside
director" under Regulation Section 1.162-27 promulgated under Section 162(m) of
the Internal Revenue Code of 1986, as amended.

In addition, in order to be deemed independent of management of the Company,
unless the Board of Directors determines otherwise, a member of the Committee
cannot have engaged in any transaction or have been involved in any business
relationship or otherwise that is described or set forth in Item 404 of
Regulation S-K promulgated by the Securities and Exchange Commission.

Each member shall also be financially literate as such qualification is
interpreted by the Board in its business judgment, or must become financially
literate within a reasonable period of time after the member's appointment to
the Audit Committee. At least one member must have accounting or related
financial management expertise as the Board interprets such qualification in its
business judgment.

Committee members may not simultaneously serve on audit committees of more than
three public companies without Board determination and disclosure in the annual
proxy statement that such service would not impair the ability of such member to
serve on the Company's Audit Committee.

The Chairman of the Corporate Governance and Nominating Committee, with the
assistance of the Presiding Director and Chairman of the Board, will recommend
the annual appointment of the Committee members, as well as the Committee Chair.
The Committee membership, including the Chair, will be determined by the entire
Board of Directors.

The Committee Chair is responsible for reporting all activities and decisions of
the Committee to the Board.

All members of the Committee serve at the discretion of the Board.

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In the event a Director becomes disqualified from membership on the Audit
Committee, such Director shall be removed as soon as practicable from service on
the Audit Committee by the Board. In the event removal, resignation, retirement,
death or other termination of a Director from service on the Audit Committee
results in the Audit Committee comprising less than three members, the Board
shall appoint a new qualified Director to the Audit Committee as soon as
practicable.

PRINCIPAL FUNCTIONS

The Committee provides assistance to the Board of Directors in fulfilling its
oversight responsibilities for the financial reporting process, the systems of
internal control, the audit process, and the Company's process for monitoring
compliance with laws and regulations and the Company's code of conduct.

The Committee shall:

a. Review with management and the independent auditors the status of
the annual audit prior to releasing the unaudited year-end earnings,
as well as the audited financial statements to be included in the
Company's annual report on Form 10-K;

b. Review quarterly unaudited financial statements, including the
related earnings press release and any financial information or
earnings guidance provided to the analysts or ratings agencies along
with the quarterly unaudited financial statements;

c. Review significant accounting and reporting issues, including
complex or unusual transactions and highly judgmental areas of
potential significance;

d. Obtain assurance from the independent and internal auditors of the
adequacy of the Company's accounting and financial controls;

e. Review significant legal matters with the Company's legal counsel;

f. Review management's monitoring of compliance with the Company's code
of ethics;

g. Establish procedures for the receipt, treatment and retention of
complaints regarding accounting, internal accounting controls or
auditing matters;

h. Appoint, approve compensation for, and oversee the work of the
independent auditors annually, including a review of the auditor's
independence, performance and results of periodic audit and
non-audit engagements;

i. Review the budget, staffing, activities, performance and results of
examinations of the Internal Audit Department;

j. Prepare a report annually that is in accordance with the applicable
rules and regulations of the SEC for inclusion in the Company's
annual proxy statement; and

k. Report Committee activities to the Board on a periodic basis.

The Company will provide appropriate funding for the Audit Committee. In
discharging its duties and responsibilities, the Audit Committee is empowered to
investigate any matter brought to its attention, with full access to all
necessary books, records, facilities and personnel of the Company and
professional services providers to the Company, and has the authority to retain
at the Company's expense special legal, accounting or other advisors,
consultants or experts as it deems appropriate.

A-2

DUTIES AND RESPONSIBILITIES

The principle duties and responsibilities of the Committee in carrying out its
oversight responsibilities are set forth below. The duties and responsibilities
are set forth as a guide with the understanding that the Committee may
supplement them as appropriate and may establish policies and procedures from
time to time that the Committee deems necessary or advisable in fulfilling its
responsibilities.

A. Financial Reporting Process and Internal Control:

1. Review with management and the independent auditors the status of
the annual audit prior to releasing the unaudited year-end earnings;
discuss matters required to be communicated to the Audit Committee
in accordance with AICPA Statement on Auditing Standards (SAS) No.
61.

2. Review with management and the independent auditors: the audited
financial statements to be included in the Company's annual report
on Form 10-K including disclosures under "Management's Discussion
and Analysis of Financial Condition and Results of Operations;"
qualitative judgments of the independent auditors about the
appropriateness, not just the acceptability, of the Company's
accounting principles, and the clarity of the financial statements;
assurance from the independent auditors that Section 10A of the
Securities Exchange Act of 1934 has not been implicated; and major
issues regarding auditing principles and practices as well as the
adequacy of internal controls that could significantly affect the
Company's financial statements. After such review and discussions,
recommend to the Board of Directors that the audited financial
statements be included in the Form 10-K for such year to be filed
with the Securities and Exchange Commission.

3. Review periodically with the independent auditors their judgments
about the quality, not just the acceptability, of the Company's
accounting principles as applied in its financial reporting,
including such issues as the reasonableness of significant judgments
and the clarity of the Company's financial disclosures and whether
the choices of accounting principles and underlying estimates and
other significant decisions made by management in preparing the
financial statements are conservative, moderate or aggressive from
the perspective of income, asset, revenue and liability recognition
and whether those principles, estimates and disclosures are common
practices or are minority practices.

4. Review with management and the independent auditors quarterly
unaudited financial statements, including the related earnings press
release and any financial information or earnings guidance provided
to the analysts or ratings agencies; discuss with the independent
auditors the results of their review performed in accordance with
SAS No. 100 for unaudited financial statements before the earnings
release is distributed to the public and prior to the Company's
filing of its Form 10-Q with the Securities and Exchange Commission.

5. Review disclosures made to the Committee by the Company's CEO and
CFO during their certification process for the Form 10-K and Form
10-Q with respect to the financial statements and about any
significant deficiencies in the design or operation of disclosure
controls and procedures and internal controls or material weaknesses
therein and any fraud involving management or other employees who
have a significant role in the Company's disclosure controls and
procedures and internal controls.

6. Review audit findings, including any significant issues, audit
problems, scope limitations, disagreements with management, and/or
suggestions for improvements provided to management by the
independent and internal auditors, and obtain management's response
to the suggestions from the independent and internal auditors.

A-3

7. Review the Company's accounting and financial controls with the
independent and internal auditors and the Company's financial
officers, including obtaining of adequate assurance from the
independent auditors and the internal audit director of the adequacy
of the Company's internal auditing, accounting and financial
controls.

8. Review with management and the independent auditors any significant
financial reporting issues and judgments made in connection with the
preparation of the Company's financial statements, including (i) an
analysis of the effect of alternative GAAP methods on the Company's
financial statements, (ii) a description of any transactions as to
which management obtained SAS No. 50 letters, (iii) any significant
changes in the Company's selection or application of accounting
principles or policies, (iv) any changes to the methods of
application, and (v) any major issues as to the adequacy of the
Company's internal controls.

9. Review with the Company's legal counsel: (i) any significant legal
matters that could have a material impact on the Company's financial
statements; (ii) legal compliance matters, including corporate
securities trading policies and material notices to or inquiries
received from government agencies; and (iii) reports or evidence of
a material violation of securities laws or breaches of fiduciary
duty.

10. Review management's monitoring of compliance with the Company's
Code of Business Conduct and Ethics.

11. Establish procedures for receiving, processing and retaining
complaints or employee concerns about accounting, internal
accounting controls and auditing matters and for the confidential
anonymous submission of concerns regarding questionable accounting
or auditing matters; review with management and the independent
auditors any correspondence with regulators or governmental agencies
and any employee complaints or published reports, which raise
material issues regarding the Company's financial statements or
accounting policies.

12. Discuss with management the Company's major financial risk
exposures and the steps management has taken to monitor and control
such exposures, including the Company's risk assessment and risk
management policies.

13. Meet periodically with the independent auditors, the director of
internal audit and management in separate executive sessions to
discuss any matters that the Audit Committee or these persons
believe should be discussed privately with the Committee.

B. Auditing Functions:

1. Review the independence and performance of the independent auditors
annually. The independent auditors report directly to the Committee,
and the Committee is directly responsible for the appointment,
retention, termination, compensation and oversight of the work of
the independent auditors, including resolution of disagreements
between management and the independent auditors regarding financial
reporting. The Committee requires rotation of the lead and
concurring audit partners in accordance with applicable
requirements.

2. On an annual basis, review and discuss with the independent auditors
all significant relationships they have with the Company that could
impair the auditors' independence and receive the written
disclosures and letter from the independent auditors required by
Independence Standards Board No. 1 and the New York Stock Exchange
listing standards.

A-4

3. Approve the engagement letters and the fees to be paid to the
independent auditors. Pre-approve all audit and non-audit services
to be provided by the independent auditors and consider the possible
effect that these services could have on the independence of such
auditors; provided that prohibited non-audit services shall include
bookkeeping, information technology design, financial systems
design, appraisal or valuation services, actuarial services,
internal audit services, management or human resources functions,
and legal services or other expert services unrelated to the audit.
The Committee may delegate to one or more of its members
pre-approval authority of non-audit services in accordance with
applicable law and the Charter.

4. Review the arrangements, scope, staffing, timing, cost and results
of periodic audits and non-audit engagements conducted by the
independent auditors.

5. Review with management and the independent auditors any management
letter provided by the auditors and the Company's response to that
letter.

6. Receive and review from the independent auditors at least annually a
report regarding the internal quality control procedures of the
independent auditors including any material issues raised within the
preceding five years by any internal quality review or peer review
of the firm, or by any inquiry or investigation by environmental or
professional authorities, as well as describing the steps the firm
has taken to deal with any reported problems.

7. Review and approve the annual and quarterly plans for internal
audit, including staffing/ appointments, and major projects
undertaken by internal audit outside of the plan.

8. Review the scope, status and results of examinations conducted by
the Company's internal auditors.

9. Review the budget, program, changes in program, activities,
strategies, organizational structure and qualifications of the
Internal Audit Department, as needed, it being understood that the
Internal Audit Department functionally reports directly to the
Committee. Evaluate whether the Internal Audit Department operation
and structure permits unrestricted access by internal auditors to
records, personnel, and physical properties relevant to the
performance of its responsibilities and to top management, the
Committee and the Board. Assess the appropriateness of the resources
allocated to internal auditing. Evaluate the effectiveness of the
internal audit function with the independent auditors and compliance
with the Institute of Internal Auditor's Standards for the
Professional Practice of Internal Auditing.

10. Review the appointment, performance and replacement of the chief
internal auditor. Decisions regarding hiring or termination of the
chief internal auditor require endorsement by the Committee. The
chairperson of the Committee will also be involved in performance
evaluation and compensation decisions related to the chief internal
auditor.

11. Set clear hiring policies for employees or former employees of the
independent auditors who participated in any capacity in the audit
of the Company.

A-5

C. Reporting Requirements:

1. The Audit Committee shall prepare the report required by the
Securities and Exchange Committee to be included in the Company's
annual proxy statement. The Committee will also disclose in the
annual report and proxy statement the Audit Committee's preapproval
policies and procedures and fees paid to the independent accountants
in accordance with Securities and Exchange Commission regulations.

2. The Audit Committee shall review and reassess the adequacy of the
Audit Committee Charter on an annual basis and any changes thereto
shall be submitted to the Board for approval. The Audit Committee
shall have the Charter published at least every third year in the
Company's proxy statement in accordance with Securities and Exchange
Commission regulations.

3. The Audit Committee shall assess its performance at least annually
and report the results to the Board.

4. On an annual basis or upon changes to the composition of the Audit
Committee, the Company must provide the New York Stock Exchange
written confirmation regarding:

a. The determination made by the Board regarding Audit Committee
member independence.

b. The financial literacy of Audit Committee members.

c. The determination that at least one Audit Committee member has
accounting or financial management expertise including the name
of any designated Audit Committee financial expert under
Securities and Exchange Commission regulation.

d. The review and reassessment of the adequacy of this Charter on an
annual basis including describing and reporting to the
shareholders the Committee's composition, responsibilities and
how they were discharged, and any other information required by
rule, including approval of non-audit services.

D. Perform any other duties or responsibilities expressly delegated to the
Committee by the Board including any duties or responsibilities as set
forth in the Corporate Governance Guidelines.

E. While the Audit Committee has the duties and responsibilities set forth
in this Charter, it is not the duty or responsibility of the Audit
Committee to plan or conduct audits or to determine that the Company's
financial statements are complete and accurate and are prepared in
accordance with generally accepted accounting principles. These duties
and responsibilities rest with management and the independent auditors.

MEETINGS

The Audit Committee will meet quarterly and at such other times as may be deemed
necessary or appropriate in the judgment of its Chairman to accomplish the
Committee's responsibilities. In lieu of a meeting, the Committee may also act
by unanimous written consent resolution. Committee meeting procedures include
the following guidelines:

1. A majority of the Committee members will be deemed a quorum for the
transaction of business.

2. The action of a majority of those present at a meeting at which a
quorum is present will represent an act of the Committee.

A-6

3. The CFO will be the management liaison to the Committee.

4. The Chairperson of the Audit Committee shall select the meeting dates
after consultation with other members of the Committee.

5. The Committee Chairperson shall prepare and/or approve an agenda in
advance of each meeting.

6. The agenda and all materials to be reviewed at the meetings will be
provided to the Committee members as far in advance of the meeting as
practicable.

7. If the Chairperson is not available for a meeting, the other members of
the Committee may appoint a temporary chairperson for such meeting.

8. The Committee may ask members of management or others to attend
meetings and provide pertinent information as necessary.

9. All Directors shall be invited to all Audit Committee meetings.

10. The Chairperson of the Audit Committee may call a meeting of the full
Board at the request of and for the purpose of meeting with the
Company's independent auditors and may call a meeting of the full Board
to consider any other matters within the purview of the Audit
Committee.

11. Minutes of any Audit Committee meetings shall be provided to all
Directors following the Audit Committee meeting and shall be submitted
for the next Board meeting, at which time the Chairperson of the Audit
Committee will provide additional comments as appropriate.

A-7

APPENDIX B

HANDLEMAN COMPANY
CORPORATE GOVERNANCE GUIDELINES

Handleman Company's stakeholders' interests are best served through the
perpetuation of a growing, financially sound business enterprise which is
committed to sound operating principals and values. The Board is responsible for
determining that the Company is managed in such a way to ensure this result.
This must be an active as opposed to passive responsibility. The Board has the
responsibility to ensure that management is capably executing its
responsibilities, and to regularly monitor the effectiveness of management
policies and decisions, including the execution of its strategies.

In addition to fulfilling its obligations for increased shareholders value, the
Board has responsibility to Handleman Company's customers, employees, suppliers
and to the communities where it operates - all of whom are essential to a
successful business. These responsibilities are best served through the
successful perpetuation of the business.

The Corporate Governance and Nominating Committee ("Committee") of the Board has
been empowered by its charter to review and recommend corporate governance
practices and policies of Handleman Company, which may include comparing the
corporate governance practices of Handleman Company to those of other public
companies and to make recommendations to the Board to assure the Company's
leadership in this area. In this regard, the Committee reviews guidelines or
practices adopted by other leading public companies, surveys and trend
information. The Committee will report its findings and recommendations for
action by the entire Board.

1. SELECTION OF CHAIRMAN AND CEO; PRESIDING DIRECTOR: Currently, the Chairman
of the Board is the Chief Executive Officer (CEO) of Handleman Company. If
the Board does not designate the Chairman of the Board as the CEO, then the
President by virtue of his office is the CEO.

The Board has no policy respecting the need to separate or combine the
offices of Chairman and CEO. The Board believes that this issue is part of
the succession planning process and that it is in the best interests of the
Company to make a determination whenever it elects a new CEO.

The Board will designate an independent Director to serve as Presiding
Director. Duties and responsibilities of the Presiding Director include:

a. Presiding over executive sessions of the independent Board members.

b. Advising the CEO of appropriate feedback from the executive session
including any actions to be taken, as well as any issues or concerns
raised by the independent Directors.

c. Advising on the agenda for the Board meetings.

d. Meeting with senior officers, if deemed appropriate, to discuss the
business and issues facing the Company.

e. Working with the Chairman of the Corporate Governance and Nominating
Committee in the selection of the Committee Chairs.

f. Meeting with shareholders, if appropriate, to discuss their concerns.

2. MEETING WITHOUT CEO: In those instances where the independent Directors meet
without the Chairman and CEO, the Presiding Director will chair the meeting.

3. NUMBER OF COMMITTEES: The Board has the following committees: Audit
Committee, Compensation Committee and Corporate Governance and Nominating
Committee. The Board has the flexibility to form a new committee or disband
a current committee. It is the policy of the Board that only independent
Directors serve on the Audit Committee, Compensation Committee and Corporate
Governance and Nominating Committee.

B-1

4. ASSIGNMENT AND ROTATION OF COMMITTEE MEMBERS: The Chairman of the Corporate
Governance and Nominating Committee with the assistance of the Presiding
Director recommends the appointment of members to the committees, the
composition of which is discussed and ratified by the entire Board, taking
into account the desires and suggestions of individual Directors. It is the
belief of the Board that committee rotation is a desirable principle, but
should not be mandated as a policy since there may be reasons at a given
point in time to maintain an individual Director's committee membership for
a longer period or to shorten the period. The learning time to become an
active contributor on a particular committee is also a factor.

5. COMMITTEE INDEPENDENCE: The Audit Committee, Compensation Committee and
Corporate Governance and Nominating Committee are to be comprised entirely
of independent Directors.

6. COMMITTEE STRUCTURE: The Audit, Compensation, and Corporate Governance and
Nominating Committees will adopt written charters which specify each
committee's responsibilities and duties.

7. FREQUENCY AND LENGTH OF COMMITTEE MEETINGS: The Chair of each committee, in
consultation with its members, determines the frequency and length of the
meetings of the committee.

8. COMMITTEE AGENDA: The Chair of each committee, in consultation with the
appropriate Officers, will develop the committee's agenda. At the beginning
of the Board year (from annual shareholders meeting to annual meeting), each
committee will establish a schedule of agenda subjects to be discussed
during the year (to the extent these can be foreseen); the schedule for each
committee will be furnished to all Directors. The agenda for each meeting
will be distributed to all Directors in advance and suggestions for changes
or additions will be solicited.

9. SELECTION OF AGENDA ITEMS FOR BOARD MEETINGS: At the beginning of the Board
year, the Chairman will establish a schedule of agenda subjects to be
discussed during the year (to the extent these can be foreseen). The
Chairman will also establish the agenda for each Board meeting. The agenda
for each meeting will be distributed to the Presiding Director in advance
and suggestions for changes or additions will be solicited. Each Board
member is free to suggest the inclusion of items on the agenda. The agenda
will include reports from each committee that has held a meeting. At least
one Board meeting each year will be a Board "retreat," the principal purpose
of which will be a Board review of long-term strategic plans and the
principal issues that Handleman Company will face in the future. The Board
will have a minimum of six scheduled meetings per Board year and will be on
call for additional meetings as needed.

10. BOARD MATERIALS: Information and data that are important to the Board's
understanding of the business will be distributed in writing to the Board
the week before the scheduled Board meeting. The Officers will strive to
make the information concise yet comprehensive, and will make an ongoing
effort to solicit suggestions from independent Directors on how to best meet
their information needs. Interim financial and operational reports will be
sent to the Directors monthly.

11. RETENTION OF CONSULTANTS: The Board has full authority to retain such
financial, legal, or other consultants, as it deems appropriate. The
necessary funds will be made available to pay for such services.

12. DIRECTOR RESPONSIBILITIES: Each Director is expected to use their best
efforts to attend all Board and committee meetings on which such Director
serves and the Annual Meeting of Shareholders. Attendance by phone is
acceptable if a Director cannot attend meetings due to travel problems,
schedule conflicts or similar causes.

13. REGULAR ATTENDANCE OF NON-DIRECTORS AT BOARD MEETINGS: The Chairman and CEO
will invite Senior Officers to attend the meeting when their presence is
expected to significantly enhance the quality of Board decisions. Generally,
attendance of non-Directors will take place when their expertise is required
or where attendance is encouraged as noted in Item 15 (e.g., at the Board
retreat).

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14. EXECUTIVE SESSIONS OF INDEPENDENT DIRECTORS: The independent Directors will
meet in executive session during each scheduled Board meeting. The Presiding
Director will preside over the executive session and will report to the
Chairman and CEO on the nature of the discussion immediately following the
Board meeting. If the Presiding Director is unavailable to preside over an
executive session, the Director designated to follow in the rotation as
Presiding Director shall serve as Presiding Director for that meeting. The
Chair of the Compensation Committee shall preside at such executive sessions
of the Board as Presiding Director for fiscal year 2005, the Chair of the
Audit Committee for fiscal year 2006, the Chair of the Corporate Governance
and Nominating Committee for fiscal year 2007, and rotating in the same
fashion thereafter.

15. BOARD ACCESS TO SENIOR MANAGEMENT: The Presiding Director will have complete
access to the Company's Officers and counsel and will communicate issues
brought up by management with the other outside Directors. It is assumed
that the Presiding Director will use appropriate judgment to be sure that
this contact is not distracting to the business operation of the Company and
that such contact, if in writing, be copied to the Chairman and CEO under
normal circumstances. Furthermore, the Board encourages the Chairman and
CEO, from time to time, to bring executives into Board meetings who: (a) can
provide additional insight into the items being discussed because of
personal involvement in these areas or (b) represent executives with future
potential that the Chairman and CEO believes should be given exposure to the
Board. The Board may retain outside counsel of its choice with respect to
any issue relating to its activities. The Chairman and CEO will be advised
on each such occasion of the law firm selected and the issues to be
addressed by it on behalf of the Board.

16. BOARD COMPENSATION REVIEW: Only non-employee Directors receive payment for
serving in the Board. The Compensation Committee is responsible for annually
evaluating and recommending Director compensation programs, including
retainers, fees and stock grants, for discussion and concurrence by the full
Board. Given the conflict inherent with Directors setting their own pay
levels, these recommendations will be based upon information in relation to
other comparable U.S. companies and in consideration of the most current
best practices provided by outside consultants and/or director compensation
surveys.

17. SIZE OF THE BOARD: It is the opinion of the Board that the optimal size of
the Board under normal circumstances is 8 to 10 members. This size permits
both a diversity of skills and views available to contribute to the duties
of the Board and its Committees as well as the coordination and
participation of all Directors in Board deliberations. However, the Board
would be willing to go to a somewhat larger size in order to accommodate the
availability of an outstanding candidate.

18. MIX OF INSIDE AND OUTSIDE DIRECTORS: The Board believes that, as a matter of
policy, there should be a majority of independent Directors on the Handleman
Board.

19. DEFINITION OF INDEPENDENT DIRECTOR: The Company has adopted the following
definition of an independent Director: one who (a) is not and has not been
employed by the Company or its subsidiaries in an executive capacity; (b) is
not an advisor or consultant to the Company; (c) is not affiliated with a
significant customer or supplier of the Company; (d) does not have a
personal services contract or arrangement with the Company; (e) is not
affiliated with a tax-exempt entity that receives significant contributions
from the Company; and (f) is not a spouse, parent, sibling or child of a
Board member or senior executive of the Company. The Board believes that all
present outside Directors are independent. Compliance with the definition of
independence is reviewed annually by the Corporate Governance and Nominating
Committee.

The Board will establish and maintain standards used to determine which
directors are independent. These standards shall consider the definition of
(i) an "independent director" as defined under the rules of the New York
Stock Exchange, as may be amended from time to time (ii) a "non-employee
director," as defined in Rule 16b-3 promulgated under Section 16 of the
Securities and Exchange Act of 1934, as amended, and (iii) an "outside
director" under Regulation Section 1.162-27 promulgated under Section 162(m)
of the Internal Revenue Code of 1986, as amended.

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In addition, in order to be deemed independent of management of the Company,
a Board member cannot have engaged in any transaction or have been involved
in any business relationship or otherwise that is described or set forth in
Item 404 of Regulation S-K promulgated by the Securities and Exchange
Commission.

20. STOCK OWNERSHIP OF OUTSIDE DIRECTORS: The ownership of stock in the Company
by outside Directors is required. The Board's policy is that each outside
Director should, within five years of first election to the Board, own
Company stock valued at market price equal to three times the annual
retainer.

21. LOANS TO DIRECTORS AND EXECUTIVE OFFICERS: It is the policy of the Company
not to make any personal loans to its Directors and Executive Officers.

22. FORMER CHIEF EXECUTIVE OFFICER'S BOARD MEMBERSHIP: The Board believes this
is a matter to be decided in each individual instance. It is assumed that
when the Chief Executive Officer resigns from that position, he/she should
offer his/her resignation from the Board at the same time. Whether the
individual continues to serve on the Board is a matter for discussion at
that time with the new CEO and the Board.

23. BOARD MEMBERSHIP CRITERIA: The Corporate Governance and Nominating Committee
is responsible for reviewing with the Board periodically the appropriate
skills and characteristics required of Board members in the context of the
current make-up of the Board. This assessment should include issues of
diversity, age, skills such as understanding of marketing, finance,
regulation and public policy, international background, other time demands
(including service on other boards), commitment to Handleman's shared
values, etc. - all in the context of an assessment of the perceived needs of
the Company and the Board at that point in time. In order to optimize
Directors' ability to represent the interest of the Company's shareholders
and other constituencies, the Board has established a guideline whereby
individuals nominated to serve as a Director of the Company can serve as a
Director on a maximum of five other public company boards.

24. IDENTIFYING NEW DIRECTOR CANDIDATES/EXTENDING INVITATIONS TO THE BOARD: The
Board itself should be responsible, in fact as well as procedure, for
identifying new members. The Board delegates the screening process involved
to the Corporate Governance and Nominating Committee and the Presiding
Director with direct input from the Chairman and CEO. The Corporate
Governance and Nominating Committee is responsible for evaluating and
recommending criteria for Board membership. The invitation to join the Board
should be extended by the Chairman and CEO and the Chair of the Corporate
Governance and Nominating Committee.

25. ASSESSING THE BOARD'S PERFORMANCE: The Board commits to participate in a
process of self-evaluation annually, led by the Corporate Governance and
Nominating Committee. This will be discussed annually with the full Board.
This assessment should be of the Board's contribution as a whole and should
specifically review areas in which the Corporate Governance and Nominating
Committee or the Chairman and CEO believes a better contribution could be
made. Its purpose is to increase the effectiveness of the Board. The purpose
of the evaluation will be to discover if there are changes to the Board's
structure and operations, which will maximize the value that the Board adds
to the Company.

26. DIRECTORS WHO CHANGE THEIR PRESENT JOB RESPONSIBILITY: It is the sense of
the Board that individual Directors who change in a substantial way the
business responsibility they held when they were elected to the Board, or
who develop a conflict as a Director of the Company with the person's
position in, or role with, another entity should inform the Chairman and CEO
and the Chair of the Corporate Governance and Nominating Committee of the
change. In addition, they must volunteer to resign from the Board. It is not
the sense of the Board that the Directors who retire from or change
substantially the position they held when they became a Director should
necessarily leave the Board. There should, however, be an opportunity of the
Board via the Corporate Governance and Nominating Committee to review the
continued appropriateness of Board membership under these circumstances.

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27. RETIREMENT AGE: Directors will submit a written resignation to the Board
upon reaching the age of 72. The Corporate Governance and Nominating
Committee will review the desirability of continued service by that Director
in light of the needs of the Company at that time and make a recommendation
to the Board. If continued service is requested, that Director will then
annually submit a written resignation to be considered by the Board.

28. FORMAL EVALUATION OF THE CEO: At the beginning of each fiscal year, the CEO
will set forthin writing to the Chair of the Compensation Committee the
CEO's personal goals for the performance of his duties and responsibilities
during such fiscal year. The independent Directors should make this
evaluation annually, and it should be communicated to the CEO by the Chair
of the Compensation Committee. The evaluation should be based on objective
criteria, including comparison of the CEO's goals for the year against
actual results, performance of the business, accomplishment of long-term
strategic objectives, management development and the like. The evaluation
will be used by the Compensation Committee in the course of its
deliberations when considering the compensation of the CEO.

29. SUCCESSION PLANNING: There will be an annual report by the CEO to the Board
on succession planning. There should also be available, on a continuing
basis, the CEO's recommendations as to a successor should the CEO be
unexpectedly disabled.

30. MANAGEMENT DEVELOPMENT: There will be an annual report to the Board by the
Chairman and CEO on Handleman's program for management development. This
report should be given to the Board at the same time as the succession
planning report.

31. BOARD INTERACTION WITH INSTITUTIONAL INVESTORS, THE PRESS, CUSTOMERS, ETC.:
The Board believes that, in general, it is optimal for the appropriate
Officers to speak for the Company and to communicate such feedback to the
Board. The Presiding Director and individual outside Board members may, from
time to time, meet or otherwise communicate with various constituencies that
are involved with the Company, including investors. It is expected that
Board members would do this with the knowledge of the Chairman and CEO and
absent unusual circumstances, only at the request of the Chairman and CEO.

32. ADHERENCE TO CODE OF BUSINESS CONDUCT AND ETHICS: Each Director shall be
familiar with and adhere to the Company's Code of Business Conduct and
Ethics. The Directors shall annually acknowledge in writing that the
Director has complied with the Code of Business Conduct and Ethics as it
applies to the Director. Additionally, a Financial Integrity and Controls
Hotline will be maintained for employees to report questionable accounting
policies or practices on an anonymous basis. Management will report all such
reports directly to the Audit Committee.

33. BOARD ORIENTATION: Each new Director will participate in an orientation
program to be acquainted with the business, the financial position,
compliance policies, and other policies relevant to Directors. In addition a
"Director Information Book" is distributed to each Director, which contains
information on director compensation, indemnification, meeting schedules,
Company SEC filings and corporate by-laws.

34. CONTINUING EDUCATION FOR DIRECTORS: One of Handleman Company's core values
is continuous learning and improvement. The Company encourages and supports
this value throughout all levels of the organization. Board members also
believe continuous learning is important to ensure the ongoing effectiveness
of the Board. The Board encourages each Director to participate in at least
one continuing education program during each Board term. Annually,
management will provide the Board a list of certified continuing education
programs available during the calendar year.

35. TRANSPARENCY: The Board believes that it is important that the Company's
stakeholders and others are able to review its corporate governance
practices. Accordingly, the Company's Corporate Governance Guidelines, Code
of Business Conduct and Ethics and Committee Charters will be published on
the Company's website.

B-5

APPENDIX C

HANDLEMAN COMPANY
CODE OF BUSINESS CONDUCT AND ETHICS

INTRODUCTION

The foundation of the Handleman Company ("Handleman" or "Company") Code of
Business Conduct and Ethics ("Code") is based upon conducting business as a good
corporate citizen in strict compliance with the laws of the jurisdictions in
which it does business, and promoting an environment which allows its employees,
officers and Directors to practice and maintain high ethical standards. The
Company proactively promotes ethical behavior among its various stakeholders.
Ethical behavior requires one to go beyond minimum standards for legally
acceptable behavior and act responsibly, with due regard for the well being of
shareholders, customers and suppliers, as well as fellow employees and
management.

Each employee, officer and Director at Handleman is responsible for his or her
own behavior. While performing their job duties, employees are responsible for
ensuring that they conduct themselves in a manner that reflects positively on
the Company. All employees, officers and Directors should refrain from any
action that reasonably might prejudice or embarrass them or the Company, or that
might give or reasonably appear to give any organization an unfair competitive
advantage over others similarly situated. If a situation arises which causes
uncertainty as to proper conduct, and such situation is not covered by the Code
of Business Conduct and Ethics, the employee should seek counsel from their
supervisor, or, if necessary, executive officers or Directors of the Company.

This Code is supplemented in part by other corporate statements, but such other
statements shall not be construed to replace or modify any of the policies in
this Code. This Code applies to Handleman Company and each of its subsidiary
companies.

HANDLEMAN CORE VALUES

Throughout its history, Handleman's growth, profitability and prosperity are
linked to our employees' ability to make decisions that are consistent with the
Company's business values and core ethical principles. By embedding these
business values and principles in the Company's policies and practices,
Handleman Company has established an ethical business culture that is accepted
by its employees, officers and Directors, and woven into the fabric of the ways
in which we work. Handleman is an exceptional company, committed to:

- HONESTY AND INTEGRITY - Honesty and integrity are defined as being
free from deception, and being conscientious and adhering to a code
of values. In other words, doing the right thing even when it's not
in one's own self-interest.

An honest person understands that if he or she finds a wallet, it is
the right thing to return it. A person with integrity will point out
an error on a bill even when undercharged. As a member of the
business community and representative of Handleman Company, honesty
and integrity must be fundamental in all of our actions.

- ACCOUNTABILITY - In our industry we are accountable to our
customers, vendors and each other. To be accountable, one must
accept responsibility and be held accountable for the results. When
results are not achieved, the person responsible will be held
accountable, and when results are achieved that person shares in the
rewards.

We are accountable to each other, and the Company is only as strong
as the weakest link. In whatever area we work, the field, ADC or in
the corporate office, we cannot operate in a vacuum. Instead we must
interact and communicate to ensure that individual and mutual
accountabilities are met and exceeded.

C-1

- CONTINUOUS LEARNING AND IMPROVEMENT - STAYING ONE STEP AHEAD OF THE
INDUSTRY - Handleman's position as the leader in our industry
demands that we must lead and not follow. We are obligated to create
an environment of continuous learning and improvement. No matter
what level of experience or knowledge we have, there is always room
for improvement. The world is changing at a rapid pace; we must
adapt to this change.

At the same time, continuous learning and improvement involves
risks. It's easy to have a 100% success rate when you aren't taking
risks; however, the true industry leader accepts failure and adapts
while always moving forward. Staying one step ahead is paramount to
our continued success.

- FOCUSED ON OUR STAKEHOLDERS - CUSTOMERS, EMPLOYEES, VENDORS AND
SHAREHOLDERS - Shareholders win when the Company's customers,
vendors and fellow employees win. This necessitates an environment
of shared learning, risks and rewards. This must be our mutual goal.
Everything we do and every decision we make must relate in a way
that benefits our customers, vendors, fellow employees, and
shareholders.

Our organizational structure is designed to accomplish this goal and
in doing so we are challenged to share best practices, communicate
openly and honestly and have mutual respect throughout all parts of
the Company.

These core values support and guide our leadership in establishing the strategic
direction of the Company. The Company's employees, officers, Directors,
representatives and vendors are expected to conduct their business in accordance
with these ethical principles. We must work according to our ethical principles
and endeavor to conduct ourselves in a manner beyond reproach. Handleman's
reputation is based on the personal integrity of each of its employees,
officers, Directors and those with whom we do business. Sound judgment must be
exercised in the service of our reputation as a global business leader, employer
of choice, and good corporate citizen

USE AND PROTECTION OF COMPANY ASSETS

All employees, officers and Directors should protect the Company's assets and
ensure their efficient use. Theft, carelessness and waste have a direct impact
on the Company's profitability. All Company assets should be used for legitimate
business purposes. Use of corporate funds or other assets for any unlawful
purpose is prohibited, local customs and traditions notwithstanding.

The improper removal of Company property from Company premises is forbidden.
This includes unauthorized disclosure or transmittal of Company information to
outside parties.

All work product generated by an employee, officer or Director during any period
of time for which he/she is compensated by the Company is the sole property of
the Company. The Company's Code does not intend that the Company would own the
product of any work performed by an employee, officer or Director outside of
Handleman work time, created without the use of Handleman facilities or
equipment, and which is not in any way related to Handleman Company or its
business.

During working hours and during any period of time that an employee is utilizing
Company facilities or equipment, substantially all of the employee's time shall
be devoted to his/her employment duties. Additionally, employees are responsible
for the use of and control over all assets and resources employed or entrusted
to them.

C-2

The Company's computer and network hardware, software, stored data and
communication systems are key components of its business. Examples of
communication systems are telephone, voicemail, e-mail, Internet/Intranet, fax
machines and pagers. Access to the Internet is limited to business purposes only
and should be made only from authorized connection points. Handleman reserves
the right to review and disclose the contents of any electronic communication to
others either inside or outside the Company. Employees, officers and Directors
should not use any Handleman communications systems to transmit information or
messages they wish to keep private. Each employee, officer and Director is
responsible for protecting these resources from damage, destruction, viruses,
alteration, theft, fraudulent manipulation, and unauthorized access, disclosure,
or use. All employees are required to review and comply with the Company
Information System Security Policies Manual and sign the Data Security
Compliance Agreement form as requested.

ACCURATE AND COMPLETE RECORDS

Employees, officers and Directors are expected to observe and comply with
generally accepted accounting principles, the system of internal accounting
controls established by the Company and provisions of the Foreign Corrupt
Practices Act and Sarbanes-Oxley Act requiring that corporate books and records
accurately and fairly reflect, in reasonable detail, the transactions and
dispositions of the assets of the Company. Employees, officers and Directors
should also provide constituents with information that is full, fair, accurate,
complete, objective, relevant, timely and understandable. In furtherance of
these requirements:

a. No false, misleading or artificial entries shall be made on corporate
books, records and reports for any reason.

b. No undisclosed or unrecorded corporate funds or assets shall be
established for any purpose nor should any off-balance sheet transactions
or financing occur without the knowledge and approval of the Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO") of the
Company.

c. No payments from corporate funds or other assets shall be approved or be
made with the intention or understanding that any part of such payment is
to be used for any purpose other than that described by the documents
supporting the payment. All payments must be supported with appropriately
approved purchase orders, invoices or receipts, expense reports or other
customary documents, all in accordance with established policy.

d. Officers, Directors and persons under their direction are prohibited from
improperly influencing the external auditors of the Company.

GIFTS, GRATUITIES AND BUSINESS COURTESIES

Gifts and other gratuities, personal favors or benefits provided directly or
indirectly by vendors, customers or other parties doing or attempting to do
business with Handleman Company are prohibited, except for lawful items of
nominal value which are customary in the industries in which the Company
operates. Reasonable business related expenditures for food and beverage are
allowed.

Gifts and other gratuities, personal favors or benefits provided out of
corporate funds or from other Company assets are prohibited, except for lawful
items of nominal value which are customary in the industries in which the
Company operates. Reasonable business related expenditures for food and beverage
are to be properly accounted for on corporate records. Customary nominal
gratuities for services performed are permitted.

Gifts, favors and entertainment may be provided at the Company's expense only if
they are of sufficiently reasonable and limited value and in a form that could
not be construed as a bribe, pay-off, kick back, or other illegal or unethical
payment. If you feel that a gift is appropriate, please confer with your Senior
Management Executive prior to giving any gifts.

C-3

Payments in the nature of a bribe or kickback from corporate funds or other
assets are prohibited. Amounts received either directly or through a third party
with an understanding that rebates or refunds will be made are prohibited.
Rebates and refunds resulting from activities performed by or for the Company
must be remitted to the Company.

No employee or Company sponsored or affiliated group may solicit or accept any
gift, favor, support or sponsorship from an organization that does business, or
seeks to do business, with the Company without the express written approval of
the CEO. This includes Company athletic events or other Company recreational
activity, such as a Christmas party or other Company sponsored gathering,
consisting principally of Company employees.

POLITICAL CONTRIBUTION AND ACTIVITIES

The making of unlawful contributions from corporate funds or other assets to a
political party, political committee or other political organization, or to a
candidate for political office, is prohibited. Political contributions, if
lawful, require Board of Directors' approval. Please contact Executive Assistant
to the CEO, for a copy of the Company's Charitable Contribution Program for
eligible contributions as well as the Matching Gifts Policy.

COMPLIANCE WITH THE LAWS, RULES AND REGULATIONS

Participation, in any capacity, by the Company or any employee, officer or
Director on behalf of the Company in any action or scheme for any unlawful
purpose is prohibited.

The Company and its employees, officers and Directors are expected to adhere
strictly to the requirements of various laws, rules and regulations affecting
the Company's business. In addition to other laws mentioned in this Code, these
laws include the Internal Revenue Code and various applicable federal, state,
provincial and local laws, appropriate private and public regulatory agencies,
the Securities Act and the Securities Exchange Act (including prohibitions on
various insider trading activities in the Company's stock and prohibitions on
disclosure of material or confidential inside information), and various
antitrust laws, such as the Sherman Act, the Clayton Act, the Robinson-Patman
Act and the Federal Trade Commission Act (including prohibitions on price
fixing, improper price inducements or allowances on the sale or purchase of
merchandise, discriminatory allowances for various services or false and
misleading advertising). It is not expected that every employee, officer and
Director will have full knowledge of the laws affecting his or her
responsibilities, but will have a general knowledge of prohibited activities
related to his or her work and will seek guidance, either directly from an
executive officer of the Company or from Company counsel, on any matter on which
there is a question.

INSIDER TRADING

The Company's CFO or Corporate Secretary will notify individuals who are
considered "restricted employees" with respect to trading in Company stock. No
stock of Handleman Company should be purchased or sold by a Director or
restricted employee without first clearing the proposed purchase or sale with
the Company's CFO or Corporate Secretary (who will review the proposed
transaction with our law firm Honigman Miller Schwartz and Cohn). In addition,
the Company's policy is that any trading in the Company's stock should be made
by a Director, officer or restricted employee only during the period beginning
three calendar days after the date of the earnings release or release of other
material information and through the end of such current fiscal quarter (the
"open window period"). The open window period may be extended for up to two
weeks after the close of a fiscal quarter when, upon consultation with the CFO
and Honigman Miller Schwartz and Cohn, it is determined that there is no
undisclosed material non-public information about the Company that could be
expected to affect the investment decision of an investor. If, however, during
the closed window period a release of preliminary financial results occurs, the
Company's CFO or Corporate Secretary will make a determination, after consulting
with the CEO and corporate counsel, if such release constitutes an earnings
release sufficient to end the restricted period. If such a determination is
made, the restricted period will end three calendar days after the date of
release

C-4

of preliminary financial results. The Company's CFO or Corporate Secretary will
be responsible for advising Directors, officers and restricted employees of this
change. If a personal hardship or other extenuating circumstances cause a need
to sell Company stock during the restricted period, the Company's CFO or
Corporate Secretary can approve sales of 500 shares or less.

In any event, however, no trading can take place at any time if there is
material information regarding the Company that has not been publicly disclosed
(in which event the "restricted period" shall be deemed to be in effect until
the open period, beginning three calendar days after such information is
publicly disclosed or is no longer material). Accordingly, since a restricted
employee might not be aware of possible material developments concerning the
Company, the restricted employee must always consult with the Company's CFO or
Corporate Secretary before any trading occurs.

The exercise of a stock option pursuant to an existing stock option agreement
may occur at any time; however, the sale of any shares of the Company's stock
received as a result of the exercise of the option should be handled in the
manner described in the previous paragraphs. This general rule may be further
restricted, in the case of beneficial owners, Directors and Executive Officers,
by the policy promulgated herein which requires adherence to various laws
affecting the Company's business, including the Securities Act and the
Securities Exchange Act. Such further restriction would relate to the
prohibition against such individual realizing a profit by purchasing and
selling, or selling and purchasing, any equity security of the Company within
any period of less than six months.

Guidance for a restricted employee's participation in the Company's 401 (k) Plan
("401 (k)") follows :

- Upon first joining the 401 (k), an employee may begin contributing
into the Company stock fund at any time.

- The Company match can occur at any time.

- An employee may reduce or stop deferring salary into the Company
stock fund at any time.

- Once in the Plan, an employee may make a new deferral or increase a
current deferral into the Company stock fund only during an open
window period.

- Employee may make intra-Plan transfers into or out of the Company
stock fund only during an open window period.

401 (k) transactions of Executive Officers are further regulated by the SEC.
Requirements include the prohibition against realizing a profit by purchasing
and selling, or selling and purchasing Company stock in the Plan within any
period of less than six months.

Employees that are not considered "restricted employees" may purchase or sell
Handleman Company stock at any time. If a non-restricted employee, however,
becomes aware of financial results or other material information that has not
been publicly disclosed, the individual will be subject to the same restricted
trading periods as a restricted employee.

CONFLICT OF INTEREST

A "conflict of interest" occurs when an individual's private interest interferes
in any way or even appears to interfere with the interests of the Company as a
whole.

Employees, officers and Directors are expected to act with honesty and
integrity, avoiding actual or apparent conflicts of interest in personal and
professional relationships. Proper ethical handling of actual or apparent
conflicts of interest between personal and professional relationships must be
maintained.

It is important for all personnel to avoid conflicts of interest that could
impair their independence of judgment concerning Company business. It is the
desire of the Company to avoid not only actual and potential conflicts, but also
the appearance of conflicts of interest involving any employee, officer or
Director of the Company or its subsidiaries. The problem is not a simple one. No
statement of policy, no matter how comprehensive and detailed, can possibly
cover all situations and answer definitively the difficult questions of judgment
involved. The Company must rely on the character, integrity and common sense of
its personnel to avoid situations in which such conflicts might appear to exist.

C-5

Employees, officers and Directors must act in good faith, responsibly, with due
care, competence and diligence, without misrepresenting material facts or
allowing their independent judgment to be subordinated.

When there is any question that a conflict of interest might be involved in an
existing situation, or in some proposed action, an employee, officer or Director
should not attempt to judge his/her own case, but should resolve any doubt in
favor of full disclosure of the facts to the Company.

A Director, officer or employee of the Company could be considered to have
violated his/her obligation to the Company in any situation where such Director,
officer or employee violates, or fails to disclose to the Company the activities
of any other Director, officer or employee of the Company which violate, the
guidelines outlined below.

a. No employee, officer or Director shall engage in any activity that is or
could foreseeable become competitive with any business activities and
operations conducted from time to time by the Company.

b. No employee, officer or Director shall engage in any part-time business
consulting arrangements or other business activities that would affect
his/her ability to perform his duties efficiently for the Company. This
would not apply to normal civic or charitable duties.

c. No employee, officer or Director or any of his/her immediate relatives
shall sell or lease to, or buy or lease from, the Company any kind of
property, facility, equipment or service directly or indirectly without
the approval of the CEO (this section excludes the purchase of compact
discs, tapes, books or other merchandise sold by the Company as permitted
under normal Company operating guidelines).

d. No employee, officer or Director or any of his/her immediate relatives
shall have any interest, direct or indirect, in any vendor, supplier,
customer, contractor or subcontractor doing business with the Company,
except for the ownership of securities of a publicly traded company.

e. No executive officer or Director shall obtain a personal loan from the
Company.

DUTY OF LOYALTY TO COMPANY

Employees, officers and Directors should not place themselves in a situation
where they, rather than the Company profit from a business transaction in which
the circumstances indicate that the business opportunity and the related profit
rightfully should have been made available to the Company. In general, business
opportunities which might reasonably be expected to be of interest to the
Company should be brought to the CEO's attention for a determination as to
whether the Company wishes to pursue it.

CONFIDENTIALITY

Employees, officers and Directors should maintain the confidentiality of
information entrusted to them by the Company or its customers, except when
disclosure is authorized or legally mandated. Confidential information includes
all non-public information that might be of use to competitors, or harmful to
the Company or its customers, if disclosed. Confidential information acquired in
the course of an employee's, officer's, or Director's work must not be used for
their personal advantage.

It is imperative that all information relating to the Company not be disclosed
to any unauthorized persons. Even within your own unit or branch, information
should only be revealed to those specific employees that have a need to know
that information.

C-6

No employee, officer or Director shall disclose or use trade secrets, price
lists, supplier lists or inside information or other confidential information
which is obtained in the course of employment for such employee's, officer's or
Director's or anyone else's, personal financial gain, or disclose such
information to any outside person or party at any time, including after
separation of employment from the Company.

FAIR DEALING

Each employee, officer and Director should endeavor to deal fairly with
Handleman's customers, suppliers, competitors, shareholders and employees. No
employee, officer or Director shall take unfair advantage of anyone through
manipulation, concealment, abuse of privileged information, misrepresentation of
material facts or any other intentional unfair dealing practice.

It is the policy of Handleman Company to recruit and hire, compensate, train,
promote, discipline, demote and discharge employees in full compliance with
state and federal laws relating to equal-employment opportunity.

Handleman views diversity as a business imperative that impacts sales,
marketing, customer service, teamwork, recruitment, productivity, globalization
and competitive advantage. The Company's aggressive growth goals, require that
the workforce demographics and management of workforce diversity be an integral
part of the organizational strategy.

Further, the Company has always taken pride in striving to provide a positive
and harassment-free work environment, which offers each employee and officer the
opportunity to perform to full potential. The Company prohibits harassment
relating to an individual's race, color, creed, religion, age, national origin,
citizenship status, gender, sexual orientation, weight, height, disability,
marital status, veteran status or any other protected classification.
Handleman's commitment to a harassment-free work environment applies to every
aspect of the relationship with the Company and includes employees, contractors,
customers and members of the public.

REPORTING OF ILLEGAL OR UNETHICAL BEHAVIOR

All employees, officers and Directors have a duty to adhere to the Code.

The Company will not discharge, demote, suspend, threaten, harass or in any
manner discriminate against any employee in terms and conditions of employment
based upon any lawful actions of such employee with respect to good faith
reporting of violations of laws, rules, regulations or the Code. All employees
can be assured that the reporting of any known violations of others will not
have an effect on their careers with Handleman Company.

The Company does not expect its employees and officers to monitor each others
business policy and conduct, but expects employees and officers to maintain high
ethical standards and personal integrity which may require reporting violations
of this code. Any employees having information or knowledge of violation of this
Code shall promptly report such matter to (i) your supervisor or other member of
management, (ii) P.O. Box 206, Troy, MI 48099-0203, or (iii) the ethics e-mail
at ethics@handleman.com.

Effective May 1, 2004, employees may anonymously submit concerns regarding
questionable accounting or auditing matters by calling "The Network", an
independent organization, which provides an anonymous reporting service for
Handleman Company's Financial Integrity and Controls Hotline.

COMPLIANCE STANDARDS AND PROCEDURES

All employees, officers and Directors shall be responsible for compliance with
this policy, including distribution to, and compliance by, the employees of
their respective departments.

C-7

The Code of Business Conduct and Ethics is included on Handleman's Internet
website www.handleman.com, and intranet website.

The CFO will update and distribute the Code to all employees, officers, and
Directors, at least annually. Key employees, officers and Directors shall
periodically certify compliance with this policy, and shall also require other
employees to do so. The Company will discipline employees and officers who do
not submit accurate acknowledgement letters in a timely manner.

Any violations of the Code must be reported as outlined above (Reporting of
Illegal and Unethical Behavior).

The CEO of Handleman Company shall have overall responsibility for supervising
compliance with the policy, establishing procedures whereby compliance can be
monitored and investigating violations or suspected violations of this policy.

The Company's Audit Committee of the Board of Directors will oversee treatment
of employee concerns of any violations or suspected violations of this policy.

Any employee or officer who violates the policies in this Code shall be subject
to disciplinary action up to and including dismissal.

Any waiver of this Code for executive officers or Directors may be made only by
the Board of Directors or a Board committee and will be promptly disclosed as
required by law and/or NYSE regulation.

C-8

APPENDIX D

CHARTER OF THE CORPORATE GOVERNANCE AND NOMINATING COMMITTEE OF THE
BOARD OF DIRECTORS OF HANDLEMAN COMPANY

This Charter sets forth the duties and responsibilities of the Corporate
Governance and Nominating Committee (the "Committee") of the Board of Directors
(the "Board") of Handleman Company (the "Company").

MISSION STATEMENT

The Corporate Governance and Nominating Committee's mission is to ensure that
the Board's corporate governance system operates effectively and fulfills the
requirements of sound corporate governance practices. The Committee shall (i)
identify individuals qualified to serve as Board members, consistent with
criteria approved by the Board; (ii) recommend to the Board the Director
nominees for election; (iii) develop and recommend to the Board corporate
governance practices applicable to the Company; (iv) oversee the annual Board
self evaluation process; and (v) annually evaluate the performance of the
Committee.

COMPOSITION

The Committee is established by the Board and will consist of three or more
members, with the exact number being determined by the Board. All members must
be independent of the management of the Company, and free of any relationship
that would interfere with their exercise of independent judgment as a Committee
member. Each of the members of the Committee will be (i) an "independent"
Director as defined under the rules of the New York Stock Exchange, as may be
amended from time to time (ii) a "non-employee director," as defined in Rule
16b-3 promulgated under Section 16 of the Securities and Exchange Act of 1934,
as amended, and (iii) an "outside director" under Regulation Section 1.162-27
promulgated under Section 162(m) of the Internal Revenue Code of 1986, as
amended.

In addition, in order to be deemed independent of management of the Company, a
member of the Committee cannot have engaged in any transaction or have been
involved in any business relationship or otherwise that is described or set
forth in Item 404 of Regulation S-K promulgated by the Securities and Exchange
Commission.

The Presiding Director, with the assistance of the Chairman of the Board, will
recommend the annual appointment of the Committee Chair. The Chairman of the
Corporate Governance and Nominating Committee, with the assistance of the
Presiding Director and the Chairman of the Board, will recommend the annual
appointment of the Committee members. The Committee membership, including the
Chair, will be ratified by the entire Board of Directors.

The Committee Chair is responsible for reporting all activities and decisions of
the Committee to the Board.

All members of the Committee serve at the discretion of the Board.

PRINCIPAL FUNCTIONS

The Committee's principle functions are to recommend to the Board qualified
individuals to become Board members; to advise on the composition of the Board
and its committees; to assess Board effectiveness, and to establish sound
corporate governance practices for the Company.

D-1

The Committee shall:

a. recommend the size and composition of the Board;

b. develop guidelines and identify qualifications for new Directors;

c. recommend nominees for Directors to the Board;

d. consider shareholder nominated candidates for election as Directors;

e. recommend committees, committee structure and committee membership for
the Board;

f. recommend performance criteria for the Board and oversee review of
Board performance;

g. review and recommend corporate governance practices and policies of the
Company;

h. review conflicts of interest that may affect Directors; and

i. report Committee activities to the Board on a periodic basis.

The Committee may be assisted on projects from time to time by independent
outside experts, consultants and various members of the Company's staff. Further
the Committee shall consult with the CEO and other members of senior management,
as necessary.

DUTIES AND RESPONSIBILITIES

The principal duties and responsibilities of the Committee in carrying out its
responsibilities are set forth below. These duties and responsibilities are set
forth as a guide with the understanding that the Committee may supplement them
as appropriate and may establish policies and procedures from time to time that
the Committee deems necessary or advisable in fulfilling its responsibilities.
The Committee shall:

1. Develop and recommend to the Board a set of corporate
governance/nominating policies, practices, and guidelines (the
"Guidelines") appropriate to the Company and review these Guidelines at
least annually and recommend changes as necessary. The Guidelines must
comply with New York Stock Exchange listing requirements.

2. Recommend to the Board the appropriate size of the Board and the
structure and operations of the various committees of the Board.

3. Lead the search for individuals qualified to become members of the
Board and to recommend Director nominees to be presented for
shareholder approval at the Annual Meeting of Shareholders. The
Committee shall solicit nominations for new Directors and screen the
list of potential new Directors submitted to it by other Directors or
any other sources.

4. In soliciting nominations for new Directors, the Committee shall decide
whether the assistance of a search firm is needed, and, if so, the
Committee shall have the sole authority to retain and terminate any
search firm. The Committee shall have the authority to approve the fees
and terms of such advisors at the expense of the Company.

5. After reviewing potential Board candidates, and consulting with the
Presiding Director and the Chairman of the Board, the Committee shall
designate which candidates are to be interviewed. Candidates at a
minimum shall be interviewed by the Chairman of the Corporate
Governance and Nominating Committee, the Presiding Director and the
Chairman of the Board, and may be interviewed by other Directors as
well.

D-2

6. Recommend for Board approval any new Directors to be nominated. Prior
to the final vote of the Board on the nomination of a new Director,
arrange for all remaining Directors not involved in the interview
process to meet the selected candidate, if desired.

7. With the assistance of the Chairman of the Board, design and ensure
new Director orientation and continuing education programs. Monitor
Director participation in the continuing education program.

8. Recommend if existing Board members should be re-nominated, after
considering the appropriate skills and characteristics required on the
Board, the current makeup of the Board and the desire of existing
Board members to be re-nominated.

9. Recommend committees, committee assignments, and committee chairs, to
the Board for approval. This process will include soliciting input
from the Presiding Director and Chairman of the Board and will, to the
extent possible, take into consideration the desires of individual
Board members.

10. Manage the process whereby the full Board annually assesses its
performance, and then report the results of this evaluation to the
Board along with any recommendations for improvements.

11. Manage the process whereby Board members are evaluated at the time
they are considered for re-nomination.

12. Review annually the Company's Corporate Governance Guidelines and
recommend any changes to the Board.

13. Review this Charter annually and recommend any appropriate changes to
the Board and annually provide a self-evaluation of the Committee's
performance to the Board.

14. Perform any other duties or responsibilities expressly delegated to
the Committee by the Board including any duties or responsibilities as
set forth in the Corporate Governance Guidelines.

MEETINGS

The Corporate Governance and Nominating Committee will meet at least two times
per year and at such other times as may be deemed necessary or appropriate in
the judgment of its Chairman to accomplish the Committee's responsibilities. In
lieu of a meeting, the Committee may also act by written consent resolution.
Committee meeting procedures include the following guidelines:

1. A majority of the Committee members will be deemed a quorum for the
transaction of business.

2. The action of a majority of those present at a meeting at which a
quorum is present will represent an act of the Committee.

3. The Committee Secretary will keep minutes of all Committee meetings,
which will be distributed to Board members.

4. The Chairman of the Board will be the management liaison to the
Committee.

5. The Chairman of the Board will prepare a preliminary agenda to be
reviewed with the Committee Chairman who will make the final decision
regarding the agenda.

D-3

6. The agenda and all materials to be reviewed at the meetings will be
provided to the Committee members as far in advance of the meeting as
practicable.

7. The Committee Chair is responsible for reporting all activities and
decisions of the Committee to the Board.

The Chairman of the Board should coordinate all mailings to the Committee
members, to the extent practicable.

D-4

APPENDIX E

CHARTER OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS OF HANDLEMAN COMPANY

This Charter sets forth the duties and responsibilities of the Compensation
Committee (the "Committee") of the Board of Directors (the "Board") of Handleman
Company (the "Company").

MISSION STATEMENT

The Compensation Committee's mission is to discharge the Board's duties and
responsibilities with respect to approving all forms of compensation and
benefits for the Company's executive officers, other key employees and
Directors. The Committee shall communicate to shareholders the Company's
compensation policies and practices as required by the Securities and Exchange
Commission (the "SEC").

COMPOSITION

The Committee is established by the Board and will consist of three or more
members, with the exact number being determined by the Corporate Governance and
Nominating Committee. All members must be independent of the management of the
Company and free of any relationship that would interfere with their exercise of
independent judgment as a Committee member. Each of the members of the Committee
will be (i) an "independent director" as defined under the rules of the New York
Stock Exchange, as may be amended from time to time (ii) a "non-employee
director," as defined in Rule 16b-3 promulgated under Section 16 of the
Securities and Exchange Act of 1934, as amended, and (iii) an "outside director"
under Regulation Section 1.162-27 promulgated under Section 162(m) of the
Internal Revenue Code of 1986, as amended.

The Committee Chair is responsible for reporting all activities and decisions of
the Committee to the Board.

All members of the Committee serve at the discretion of the Board.

PRINCIPAL FUNCTIONS

The Committee provides assistance to the Board of Directors in fulfilling its
responsibility to achieve the Company's objective of maximizing the long-term
total return to shareholders by ensuring that executive officers, key employees
and Directors are fairly and appropriately compensated in accordance with the
Company's compensation philosophy, objectives and policies.

The Committee will review and approve compensation and benefit policies,
strategies and pay levels necessary to support the Company's objectives.

E-1

The Committee shall:

a. Review and approve the Company's compensation philosophy;

b. Review and approve the executive compensation programs, plans and
awards;

c. Oversee CEO and other executive officer succession;

d. Oversee the administration of the Company's short- and long-term
incentive plans, including all stock or stock-based plans;

e. Review and approve general employee pension benefit plans of the
Company, as well as all other employee benefit plan arrangements; and

f. Issue a report annually on executive compensation that is in accordance
with the applicable rules and regulations of the SEC for inclusion in
the Company's annual proxy statement.

The Committee may be assisted on projects from time to time by independent
outside experts, consultants and various members of the Company's staff.
Further, the Committee shall consult with the CEO and other members of senior
management, as necessary.

DUTIES AND RESPONSIBILITIES

The principal duties and responsibilities of the Committee in carrying out its
oversight responsibilities are set forth below. These duties and
responsibilities are set forth as a guide with the understanding that the
Committee may supplement them as appropriate and may establish policies and
procedures from time to time that the Committee deems necessary or advisable in
fulfilling its responsibilities.

1. Oversee and approve the design of a comprehensive executive
compensation policy that (a) supports the Company's overall strategy
and objectives; (b) attracts and retains key executives; (c) links
total compensation to financial performance and the attainment of
strategic objectives; and (d) provides competitive total compensation
opportunities at a reasonable cost while enhancing the ability to
fulfill the Company's objectives.

2. Periodically review and approve new compensation plans to insure
consistency with the compensation policy, and monitor the
appropriateness and effectiveness of such plans. The Committee will
also review and make recommendations to the Board with respect to the
adoption of, or amendments to, equity-based incentive compensation.

3. Review and approve the annual base salary, annual incentive
compensation, long-term incentive grants, executive perquisites,
benefits and supplemental benefits of the CEO, executive officers and
other key employees of the Company.

4. Annually evaluate the CEO's and other key executives' incentive
compensation payouts against pre-established, measurable performance
goals and objectives.

5. Annually appraise the performance of the CEO and provide developmental
feedback to the CEO.

6. Assist the Board in the annual review of a succession plan for the CEO
and other executive officers with consideration of the CEO's
recommendations.

7. Review and recommend Director compensation programs, including
retainers, fees and stock grants, for vote by the full Board. Given the
conflict inherent with Directors setting their own pay levels, these
recommendations will be based upon information provided by outside
consultants and/or director compensation surveys.

E-2

8. Retain, as it deems appropriate, compensation consultants, legal
counsel and other advisors to assist the Committee in connection with
its functions. The Committee shall have the sole authority to approve
the fees and other retention terms of such advisors at the expense of
the Company.

9. Review and approve the Company's Share Ownership Guidelines for key
management and Directors, and monitor compliance with such Share
Ownership Guidelines.

10. Review and approve the contents of SEC filings relating to
compensation matters. This includes information included in the proxy
statement, including the Compensation Committee Report, as well as
disclosures in the SEC Form 10-K.

11. Confirm that the compensation program and practices of the Company are
designed with full consideration of all tax, accounting, legal and
regulatory requirements (including Section 162(m)).

12. Keep abreast of current developments in executive compensation and
employee compensation practices.

13. Report the findings and/or recommendations of the Committee to the
Board on a periodic basis.

14. Review this Charter annually and recommend to the Board any changes it
determines are appropriate and annually provide a self-evaluation of
the Committee's performance to the Board.

15. Perform any other duties or responsibilities expressly delegated to
the Committee by the Board including any duties or responsibilities as
set forth in the Corporate Governance Guidelines.

MEETINGS

The Committee will meet at least three times per year and at such other times as
may be requested by its Chairman to accomplish the Compensation Committee's
responsibilities. In lieu of a meeting, the Committee may also act by written
consent resolution. Committee meeting procedures include the following
guidelines:

1. A majority of the Committee members will be deemed a quorum for the
transaction of business.

2. The action of a majority of those present at a meeting at which a
quorum is present will represent an act of the Committee.

3. The Committee Secretary will keep minutes of all Committee meetings,
which will be distributed to Board members.

4. The CEO will be the management liaison to the Committee.

5. The CEO will prepare a preliminary agenda to be reviewed with the
Committee Chairman who will make the final decision regarding the
agenda.

6. The agenda and all materials to be reviewed at the meetings will be
provided to the Committee members as far in advance of the meeting as
practicable.

The CEO should coordinate all mailings to the Committee members, to the extent
practicable.

E-3

APPENDIX F

HANDLEMAN COMPANY
2004 STOCK PLAN

1. PURPOSE OF PLAN: The purpose of the Handleman Company 2004 Stock Plan is to
promote the performance and long-term growth of the Company by advancing its
ability to attract, motivate and retain key employees (including officers who
are also key employees) and outside Directors, as well as to strengthen the
mutuality of interests of its key employees and outside Directors with the
Company's shareholders.

2. DEFINITIONS: As used herein, the following definitions shall apply:

(a) "Plan" shall mean this Handleman Company 2004 Stock Plan.

(b) "Company" shall mean Handleman Company, a Michigan corporation, or
any successor thereof.

(c) "Committee" shall mean the Compensation Committee of the Board of
Directors of the Company. All members of the Committee must be
independent of the management of the Company, and free of any
relationship that would interfere with their exercise of independent
judgment as a Committee member. Each of the members of the Committee
will be (i) an "independent director" as defined under the rules of
the New York Stock Exchange, as may be amended from time to time
(ii) a "non-employee director," as defined in Rule 16b-3 promulgated
under Section 16 of the Securities and Exchange Act of 1934, as
amended, (the "Exchange Act") or any similar or successor provision
and (iii) an "outside director" under Regulation Section 1.162-27
promulgated under Section 162(m) of the Internal Revenue Code of
1986, as amended.

(d) "Common Stock" shall mean the Company's Common Stock, $0.01 par
value per share.

(e) "Participant" shall mean any Director who is not an employee of the
Company or any Subsidiary (hereinafter defined as an "Outside
Director") and any officer or employee of the Company or any
Subsidiary designated by the Committee under Paragraph 6, for
participation in the Plan.

(f) "Nonqualified Option" shall mean an option to purchase Common Stock
of the Company which meets the requirements set forth in the Plan
but does not meet the definition of, or is not intended to be, an
incentive stock option set forth in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").

(g) "Incentive Option" shall mean an option to purchase Common Stock of
the Company which meets the requirements set forth in the Plan and
also meets the definition of an incentive stock option set forth in
Section 422 of the Code.

(h) "Subsidiary" shall mean any Company, limited liability Company,
partnership, or any other entity, in which the Company owns,
directly or indirectly, stock or interest therein, possessing more
than twenty-five percent of the combined voting power of all classes
of stock or interests.

(i) "Restricted Stock" shall mean a grant of Common Stock of the Company
which is subject to restrictions against transfer, forfeiture and
such other terms and conditions determined by the Committee, as
provided in Paragraph 17.

F-1

(j) "Performance Share" shall mean a grant of Common Stock of the
Company upon the attainment of one or more performance goals during
a performance period established by the Committee, as provided in
Paragraph 18.

(k) "Performance Unit" shall mean a grant of an amount of cash,
determined by reference to a share of Common Stock of the Company,
upon the attainment of one or more performance goals during a
performance period established by the Committee, as provided in
Paragraph 18.

(l) "Stock Appreciation Right" shall mean any right granted to a
Participant pursuant to Paragraph 9 hereof to receive, upon exercise
by the Participant, the excess of (i) the fair market value of one
share of Common Stock of the Company on the date of exercise or, if
the Committee shall so determine in the case of any such right other
than one related to any Incentive Option, at any time during a
specified period before the date of exercise over (ii) the grant
price of the right on the date of grant, or if granted in connection
with an outstanding option on the date of grant of the related
option, as specified by the Committee in its sole discretion, which
shall not be less than the fair market value of one share of Common
Stock of the Company on such date of grant of the right or the
related option, as the case may be.

3. ADMINISTRATION: The Plan shall be administered by the Committee. Subject to
the provisions of the Plan, the Committee shall determine, from those eligible
to be Participants under the Plan, the persons to be granted stock options,
Stock Appreciation Rights, Restricted Stock, Performance Shares and Performance
Units, the amount of stock or rights to be optioned or granted to each such
person, and the terms and conditions of any stock options, Stock Appreciation
Rights, Restricted Stock, Performance Shares and Performance Units. Subject to
the provisions of the Plan, the Committee is authorized to interpret the Plan,
to promulgate, amend and rescind rules and regulations relating to the Plan and
to make all other determinations necessary or advisable for its administration.
Interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive. Acts approved by a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by a majority of the Committee, shall be the acts of the Committee.

4. INDEMNIFICATION OF COMMITTEE MEMBERS: In addition to such other rights of
indemnification as they may have, the members of the Committee shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees, actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any stock option, Stock Appreciation
Right, Restricted Stock, Performance Share or Performance Unit granted
hereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by the Board of Directors of the Company) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be determined in such action,
suit or proceeding that such Committee member has acted in bad faith; provided,
however, that within sixty (60) days after receipt of notice of institution of
any such action, suit or proceeding a Committee member shall offer the Company
in writing the opportunity, at its own cost, to handle and defend the same.

5. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN: The maximum number of shares of
stock which may be issued pursuant to Restricted Stock or Performance Share
awards or with respect to which stock options may be granted under the Plan
shall not exceed in the aggregate 750,000 shares (subject to adjustments as
provided in this Paragraph 5), of which no more than 500,000 shares in the
aggregate (subject to adjustments as provided in this Paragraph 5) may be issued
pursuant to Incentive Options.

The maximum number of shares with respect to which stock options, Stock
Appreciation Rights, Restricted Stock, Performance Shares or Performance Units
may be granted to any Participant (other than an Outside Director) during any
calendar year shall not exceed 200,000 shares (subject to adjustments as
provided in this Paragraph 5) and the maximum number of shares with respect to

F-2

which stock options, Stock Appreciation Rights or Restricted Stock may be
granted to any Outside Director Participant during any calendar year shall not
exceed 10,000 shares (subject to adjustments as provided in this Paragraph 5).

For the purpose of computing the total number of shares of Common Stock
available for grants of stock options, Restricted Stock or Performance Share
awards under the Plan, there shall be counted against the foregoing limitations
the number of shares of Common Stock subject to issuance upon exercise or
settlement of grants or awards as of the dates on which such grants or awards
are granted. The shares of Common Stock which were previously subject to grants
or awards shall again be available for grants or awards under the Plan if any
such grants or awards are forfeited, terminated, expire unexercised, settled in
cash or exchanged for other grants or awards (to the extent of such forfeiture,
termination, expiration, cash settlement or exchange of such grants or awards),
or if the shares of Common Stock subject thereto can otherwise no longer be
issued. Further, any shares of Common Stock which are used as full or partial
payment to the Company by a Participant of the purchase price of shares of
Common Stock upon exercise of a stock option shall again be available for grants
or awards under the Plan. Notwithstanding the foregoing, all shares of Common
Stock with respect to which a grant or award is granted shall be counted for
purposes of the 200,000 and 10,000 shares per year, per Participant share
limitations, regardless of whether the Participant does not realize the benefit
of the grant or award as a result of forfeiture, cancellation, expiration,
termination or other event. Consistent with the purposes of the Plan and with a
view to avoiding over or under counting, the Committee shall, in its discretion,
determine the number of shares of Common Stock to charge against the shares of
Common Stock remaining available under the Plan as a result of the grant,
exercise or settlement of, or other transactions relating to, grants or awards
made under the Plan.

The number of shares subject to each outstanding stock option, Stock
Appreciation Right, Restricted Stock, Performance Share or Performance Unit
award, the option price with respect to outstanding stock options and Stock
Appreciation Rights, the aggregate number of shares available at any time under
the Plan, and the maximum number of shares as to which grants or awards may be
made to an individual Participant during any calendar year shall be subject to
such adjustment as the Committee, in its discretion, deems appropriate to
reflect such events as stock dividends, stock splits, recapitalizations,
mergers, consolidations or reorganizations of or by the Company; provided,
however, that no fractional shares shall be issued pursuant to the Plan, no
rights may be granted under the Plan with respect to fractional shares, and any
fractional shares resulting from such adjustments shall be eliminated from any
outstanding stock option or Restricted Stock or Performance Share award.

6. PARTICIPANTS: The Committee shall determine and designate from time to time,
in its sole discretion, those Outside Directors and key employees (including
officers who are also key employees) of the Company or any Subsidiary to whom
stock options, Stock Appreciation Rights, Restricted Stock, Performance Shares
or Performance Units are to be granted or awarded and who thereby become
Participants under the Plan.

7. WRITTEN AGREEMENT: Each stock option and Stock Appreciation Right granted and
each award of Restricted Stock, Performance Shares and Performance Units shall
be evidenced by a written agreement between the Company and the Participant and
shall contain such provisions as may be approved by the Committee. Such
agreements shall constitute binding contracts between the Company and the
Participant, and every Participant, upon acceptance of such agreement, shall be
bound by the terms and restrictions of the Plan and of such agreement. The terms
of each such agreement shall be in accordance with the Plan, but the agreements
may include such additional provisions and restrictions determined by the
Committee, provided that such additional provisions and restrictions do not
violate the terms of the Plan.

8. ALLOTMENT OF SHARES: Subject to the provisions of Paragraph 5 of the Plan,
the Committee shall determine and fix the number of shares of stock with respect
to which each Participant may be granted stock options and Stock Appreciation
Rights and the number of Performance Shares and Performance Units and shares of
Restricted Stock which each Participant may be awarded; provided, however, that
no Incentive Option may be granted under the Plan to any one Participant which
would result in the aggregate fair market value, determined as of the date the
option is granted, of underlying

F-3

stock with respect to which Incentive Options are exercisable for the first time
by such Participant during any calendar year under any plan maintained by the
Company (or any parent or Subsidiary of the Company) exceeding $100,000.

9. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS: Subject to the terms of the
Plan, the Committee may grant to Participants either Incentive Options,
Nonqualified Options or any combination thereof, provided, however, that Outside
Director Participants may only be granted Nonqualified Options and an employee
of a Subsidiary may be granted an Incentive Option only if the Subsidiary is a
Company (or is treated as a disregarded entity owned by a Company) fifty percent
or more of the combined voting power of all classes of stock of which is owned,
directly or indirectly, by the Company. Each option granted under the Plan shall
designate the number of shares covered thereby, if any, with respect to which
the option is an Incentive Option, and the number of shares covered thereby, if
any, with respect to which the option is a Nonqualified Option. Stock
Appreciation Rights may be granted hereunder to Participants either alone or in
addition to or in conjunction with other awards granted under the Plan and may,
but need not, relate to a specific option granted under this Paragraph 9. The
provisions of Stock Appreciation Rights need not be the same with respect to
each recipient. Any Stock Appreciation Right related to a Nonqualified Option
may be granted at the same time such Nonqualified Option is granted or at any
time thereafter before exercise or expiration of such Nonqualified Option. Any
Stock Appreciation Right related to an Incentive Option must be granted at the
same time such Incentive Option is granted, and may be exercised only if and
when the fair market value of the Common Stock subject to the Incentive Option
exceeds the aggregate exercise price for the Common Stock subject to the
Incentive Option and the amount payable to the Participant upon exercise of such
Stock Appreciation Right may not exceed the amount of such excess. Moreover, any
Stock Appreciation Right related to an Incentive Option may be exercised only
when such Incentive Option is eligible to be exercised, and shall be
transferable only when such Incentive Option is transferable and under the same
conditions. In the case of any Stock Appreciation Right related to any option,
the Stock Appreciation Right or applicable portion thereof shall terminate and
no longer be exercisable upon the termination or exercise of the related option,
except that a Stock Appreciation Right granted with respect to less than the
full number of shares of Common Stock covered by a related option shall not be
reduced until the exercise or termination of the related option exceeds the
number of shares of Common Stock not covered by the Stock Appreciation Right.
Any option related to any Stock Appreciation Right shall no longer be
exercisable to the extent the related Stock Appreciation Right has been
exercised. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it shall deem appropriate.

10. STOCK OPTION PRICE: Subject to the rules set forth in this Paragraph 10, at
the time any stock option is granted, the Committee shall establish the price
per share for which the shares covered by the option may be purchased. With
respect to an Incentive Option, such option price shall not be less than 100% of
the fair market value of the stock on the date on which such option is granted;
provided, however, that with respect to an Incentive Option granted to an
employee who at the time of the grant owns (after applying the attribution rules
of Section 424(d) of the Code) more than 10% of the total combined voting stock
of the Company or of any parent or Subsidiary, the option price shall not be
less than 110% of the fair market value of the stock on the date such option is
granted. With respect to a Nonqualified Option, the option price shall not be
less than 100% of the fair market value of the stock on the date such option is
granted. Fair market value of a share shall be determined by the Committee and
may be determined by taking the mean between the highest and lowest quoted
selling prices of the Company's stock on any exchange or other market on which
the shares of Common Stock of the Company shall be traded on such date. The
option price shall be subject to adjustment in accordance with the provisions of
Paragraph 5 of the Plan.

Notwithstanding anything to the contrary contained in the Plan, no decrease in
the option price (through amendment, cancellation or replacement grants or any
other means) of any stock option previously granted to a Participant, where such
decrease would be deemed to be a repricing thereof in accordance with Item
402(i) of Regulation S-K, or any similar or successor provision, promulgated by
the Securities and Exchange Commission, shall be valid or effective unless such
repricing shall be approved by a majority of the shareholders of the Company who
vote on such repricing within twelve (12) months of the date of such repricing.

F-4

11. PAYMENT OF STOCK OPTION PRICE: At the time of the exercise in whole or in
part of any stock option granted hereunder, payment of the option price in full
in cash or, with the consent of the Committee, in Common Stock of the Company,
shall be made by the Participant for all shares so purchased. In the discretion
of, and subject to such conditions as may be established by, the Committee,
payment of the option price may also be made by the Company retaining from the
shares to be delivered upon exercise of the stock option that number of shares
having a fair market value on the date of exercise equal to the option price of
the number of shares with respect to which the Participant exercises the option.
In the discretion of the Committee, a Participant may exercise an option, if
then exercisable, in whole or in part, by delivery to the Company of written
notice of the exercise in such form as the Committee may prescribe, accompanied
by irrevocable instructions to a stock broker to promptly deliver to the Company
full payment for the shares with respect to which the option is exercised from
the proceeds of the stock broker's sale of or loan against some or all of the
shares (a "Regulation T Stock Option Exercise"). In the event the Company then
has in effect a stock repurchase program, in its discretion and subject to such
terms and conditions as it may impose, the Committee may permit a Participant to
exercise an option and pay the option price by delivering to the Company a
written notice of exercise which includes a request that the Company repurchase
(and retain the repurchase price of) that number of the option shares having a
fair market value on the date of exercise equal to the option price of the
number of shares with respect to which the Participant exercises the option.
Such payment may also be made in such other manner as the Committee determines
is appropriate, in its sole discretion. No Participant shall have any of the
rights of a shareholder of the Company under any stock option until the actual
issuance of shares to said Participant, and prior to such issuance no adjustment
shall be made for dividends, distributions or other rights in respect of such
shares, except as provided in Paragraph 5.

12. GRANTING AND EXERCISE OF STOCK OPTIONS: Each stock option granted hereunder
shall be exercisable at any such time or times or in any such installments as
may be determined by the Committee at the time of the grant; provided, however,
that no stock option may be exercisable prior to the expiration of six (6)
months from the date of grant unless the Participant retires from employment at
a retirement age permitted under the Company's retirement Plan or dies or
becomes disabled prior thereto; and provided further that no Nonqualified Option
granted to an outside Director Participant may be exercisable prior to the
expiration of twelve (12) months from the date of grant unless the outside
director Participant dies or becomes disabled prior thereto or terminates
services as an outside director prior thereto. In addition, the aggregate fair
market value (determined at the time the option is granted) of the stock with
respect to which Incentive Options are exercisable for the first time by a
Participant during any calendar year shall not exceed $100,000.

A Participant may exercise a stock option, if then exercisable, in whole or in
part by delivery to the Company of written notice of the exercise, in such form
as the Committee may prescribe, accompanied by payment for the shares with
respect to which the stock option is exercised as provided in Paragraph 11.
Except as provided in Paragraph 16, stock options may be exercised only while
the Participant is an employee or an outside Director, as the case may be, of
the Company or a Subsidiary.

Successive stock options may be granted to the same Participant, whether or not
the stock option(s) previously granted to such Participant remain unexercised. A
Participant may exercise a stock option, if then exercisable, notwithstanding
that stock options previously granted to such Participant remain unexercised.

13. NON-TRANSFERABILITY OF STOCK OPTIONS: No stock option or Stock Appreciation
Right granted under the Plan to a Participant shall be transferable by such
Participant otherwise than by will, or by the laws of descent and distribution,
and each such option and Stock Appreciation Right shall be exercisable, during
the lifetime of the Participant, only by the Participant. Notwithstanding the
foregoing, in its sole discretion and subject to such terms and conditions as it
may prescribe, the Committee may permit a Participant to transfer a Nonqualified
Option or related Stock Appreciation Right.

F-5

14. TERM OF STOCK OPTIONS: If not sooner terminated, each stock option granted
hereunder shall expire not more than ten (10) years from the date of the
granting thereof; provided, however, that with respect to an Incentive Option
granted to a Participant who, at the time of the grant, owns (after applying the
attribution rules of Section 424(d) of the Code) more than 10% of the total
combined voting stock of all classes of stock of the Company or any parent or
Subsidiary, such option shall expire not more than five (5) years after the date
of granting thereof.

15. CONTINUATION OF EMPLOYMENT: The Committee may require, in its discretion,
that any Participant under the Plan to whom a stock option or Stock Appreciation
Right shall be granted shall agree in writing as a condition of the granting of
such stock option or Stock Appreciation Right to remain in the employ of the
Company or a Subsidiary for a designated minimum period from the date of the
granting of such stock option or Stock Appreciation Right as shall be fixed by
the Committee and may further require, in its discretion, that any Participant
agree in writing to comply with any confidentiality, non-solicitation,
non-competition and non-disparagement provisions and covenants that the
Committee may require as a condition precedent to the exercise of a stock option
or Stock Appreciation Right.

16. TERMINATION OF EMPLOYMENT: If the employment of a Participant by the Company
or a Subsidiary shall be terminated (or an outside Director's service as a
Director shall terminate), the Committee may, in its discretion, permit the
exercise of stock options granted to such Participant (a) for a period not to
exceed three months following such termination of employment (or one year
following termination of employment on account of the Participant's death or
permanent disability) with respect to Incentive Options, and (b) for a period
not to extend beyond the expiration date with respect to Nonqualified Options.
In no event, however, shall a stock option be exercisable subsequent to its
expiration date. A stock option may only be exercised after termination of a
Participant's employment (or of an outside director's service as a director) to
the extent exercisable on the date of termination of employment (or termination
of service as an outside director); provided, however, that if the termination
of a Participant's employment (or of an outside director's service as a
director) is due to the Participant's death or permanent disability, all stock
options granted to such Participant shall thereupon become exercisable in full;
and provided further, that if the termination of a Participant's employment (or
of an outside director's service as a director) is due to the Participant's
retirement at a retirement age permitted under the Company's retirement Plan,
the Participant's stock options will become exercisable following the
termination of employment or service as a director in accordance with the
provisions established at the time of grant in the relevant stock option
agreement or agreements.

17. RESTRICTED STOCK AWARDS: Subject to the terms of the Plan, the Committee may
award shares of Restricted Stock to Participants. All shares of Restricted Stock
granted to Participants under the Plan shall be subject to the following terms
and conditions (and to such other terms and conditions prescribed by the
Committee):

(a) At the time of each award of restricted shares, there shall be
established for the shares a restricted period, which shall be no
less than six (6) months. Such restricted period may differ among
Participants and may have different expiration dates with respect to
portions of shares covered by the same award.

(b) Shares of Restricted Stock awarded to Participants may not be sold,
assigned, transferred, pledged, hypothecated or otherwise encumbered
during the restricted period applicable to such shares. Except for
such restrictions on transfer, a Participant shall have all of the
rights of a shareholder in respect of restricted shares awarded to
him or her including, but not limited to, the right to receive
dividends on, and the right to vote, the shares.

(c) If a Participant ceases to be employed by the Company or a
Subsidiary for any reason other than death, permanent disability or
retirement at a retirement age permitted under the Company's
retirement Plan, all shares theretofore awarded to the Participant
which are still subject to the restrictions imposed by Paragraph

F-6

17(b) shall upon such termination of employment be forfeited and
transferred back to the Company, without payment of any
consideration by the Company; provided, however, that in the event
such employment is terminated by action of the Company or a
Subsidiary without cause or by agreement between the Company or a
Subsidiary and the Participant, the Committee may, in its
discretion, release some or all of the shares from the restrictions.
For this purpose, the Committee's definition of "cause" shall be
final and conclusive.

(d) If a Participant ceases to be employed by the Company or a
Subsidiary by reason of death, permanent disability or retirement at
a retirement age permitted under the Company's retirement Plan, the
restrictions imposed by Paragraph 17(b) shall lapse with respect to
shares then subject to such restrictions.

(e) Stock certificates may be issued in respect of shares of Restricted
Stock awarded hereunder, in which event the certificates shall be
registered in the name of the Participant. Such certificates, if
issued, shall be deposited with the Company or its designee,
together with a stock power endorsed in blank, and, in the
discretion of the Committee, a legend shall be placed upon such
certificates reflecting that the shares represented thereby are
subject to restrictions against transfer and forfeiture. In the
discretion of the Committee, in lieu of issuing certificates for
shares of Restricted Stock granted hereunder, the shares may be
registered in the name of the Participant and held in book entry
form by the Company's stock transfer agent.

(f) At the expiration of the restricted period applicable to the shares,
the Company shall deliver to the Participant or the legal
representative of the Participant's estate stock certificates for
the shares. If certificates for the shares have previously been
issued and a legend has been placed on such certificates in
accordance with Paragraph 17(e), the Company shall cause such
certificates to be reissued without the legend.

In the case of events such as stock dividends, stock splits, recapitalizations,
mergers, consolidations or reorganizations of or by the Company, any stock,
securities or other property which a Participant receives or is entitled to
receive by reason of his ownership of restricted shares shall, unless otherwise
determined by the Committee, be subject to the same restrictions applicable to
the restricted shares and shall be deposited with the Company or its designee or
held in book entry form by the Company's stock transfer agent.

18. PERFORMANCE SHARES AND PERFORMANCE UNITS: The Committee may grant to a
Participant the right to obtain Performance Shares or Performance Units, or some
combination of each, subject to the following terms and conditions:

(a) The Participant's right to obtain Performance Shares or Performance
Units shall be subject to attainment of one or more performance
goals over a performance period prescribed by the Committee.

(b) The performance goal applicable to an award to a Participant of the
right to obtain Performance Shares or Performance Units shall be
based upon free cash flow and/or cash flow return on investment of
the Company, a Subsidiary, or a division or unit thereof. The
performance goal may also be based upon stock price, market share,
sales, revenues, earnings per share, return on equity, total
shareholders return, costs, net income, and/or margins of the
Company, a Subsidiary, or a division or unit thereof. The specific
targets and other details of the performance goal shall be
established by the Committee in its discretion. A performance goal
must, however, be objective so that a third party with knowledge of
the relevant facts could determine whether the goal has been
attained.

F-7

(c) The performance goal applicable to an award to a Participant of the
right to obtain Performance Shares or Performance Units shall be
established by the Committee in writing at any time during the
period beginning on the date of the award and ending on the earlier
of (i) ninety (90) days after commencement of the performance period
applicable to the award, or (ii) expiration of the first 25% of the
performance period; provided, however, that there must be
substantial uncertainty whether a performance goal will be attained
at the time it is established by the Committee.

(d) The performance goal established by the Committee must prescribe an
objective formula or standard, that could be applied by a third
party having knowledge of the relevant performance results, to
compute the number of Performance Shares or Performance Units
issuable to the Participant if the goal is attained.

(e) Unless otherwise determined by the Committee in the case of a
Participant who dies or becomes permanently disabled, Performance
Shares and Performance Units shall be issued to a Participant only
after (i) expiration of the performance period and attainment of the
performance goal applicable to the award, and (ii) issuance of a
written certification by the Committee (including approved minutes
of the meeting of the Committee at which the certification is made)
that the performance goal and any other material terms of the award
have been attained or satisfied.

(f) No Participant shall have any of the rights of a shareholder of the
Company in respect of the shares covered by a Performance Share or
Performance Unit award until the actual issuance of the shares to
said Participant and, prior to such issuance, no adjustments shall
be made for dividends, distributions or other rights in respect of
such shares, except as provided in Paragraph 5.

(g) In its discretion and subject to such terms and conditions as it may
impose, the Committee may permit a Participant to elect to defer
receipt of Performance Shares or Performance Units to a time later
than the time the shares otherwise would be issued or cash would
otherwise be paid to the Participant. In such event, the Committee
may, in its discretion, provide for the payment of a market rate of
interest in respect of such deferral.

(h) In the discretion of the Committee, in lieu of settling a
Performance Share award by issuance of shares of Common Stock of the
Company to a Participant, all or a portion of the award may be
settled by payment of cash to the Participant in an amount equal to
the fair market value of the otherwise issuable shares as of the end
of the performance period applicable to the award; provided,
however, that the amount of cash paid to any Participant during any
calendar year in settlement of a Performance Share award shall not
exceed $1,000,000.

(i) Unless otherwise determined by the Committee, Performance Shares,
Performance Units or rights therein awarded to a Participant may not
be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered by the Participant at any time before actual issuance of
the shares to the Participant.

(j) In its discretion, the Committee may subject a Performance Share or
Performance Unit award to a Participant to any other terms or
conditions not inconsistent with the foregoing, including, without
limitation, a requirement that the Participant remain an employee of
the Company or a Subsidiary (including at or above a specified
salary grade) for the entire performance period applicable to the
award.

F-8

Performance Share and Performance Unit awards under the Plan are intended to
constitute qualified performance-based compensation for purposes of Section
162(m)(4)(C) of the Code and the Treasury Regulations thereunder, and the
provisions of this Paragraph 18 (and the other provisions of the Plan relating
to Performance Share and Performance Unit awards) shall be interpreted and
administered to effectuate that intent. Moreover, the Committee may revise or
modify the terms of an outstanding Performance Share or Performance Unit award
to the extent the Committee determines, in its discretion, that such revision or
modification is necessary for such award to constitute qualified
performance-based compensation.

19. INVESTMENT PURPOSE: If the Committee in its discretion determines that
as a matter of law such procedure is or may be desirable, it may require a
Participant, upon any acquisition of stock hereunder (whether by reason of the
exercise of stock options or the award of restricted or Performance Shares) and
as a condition to the Company's obligation to deliver certificates representing
such shares, to execute and deliver to the Company a written statement in form
satisfactory to the Committee, representing and warranting that the
Participant's acquisition of shares of stock shall be for such person's own
account, for investment and not with a view to the resale or distribution
thereof and that any subsequent offer for sale or sale of any such shares shall
be made either pursuant to (a) a Registration Statement on an appropriate form
under the Securities Act of 1933, as amended (the "Securities Act"), which
Registration Statement has become effective and is current with respect to the
shares being offered and sold, or (b) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption the
Participant shall, prior to any offer for sale or sale of such shares, obtain a
favorable written opinion from counsel for or approved by the Company as to the
availability of such exemption. The Company may endorse an appropriate legend
referring to the foregoing restriction upon the certificate or certificates
representing any shares issued or transferred to the Participant under the Plan.

20. RIGHTS TO CONTINUED EMPLOYMENT: Nothing contained in the Plan or in any
stock option, Stock Appreciation Right, Restricted Stock, Performance Share or
Performance Unit granted or awarded pursuant to the Plan, nor any action taken
by the Committee hereunder, shall confer upon any Participant any right with
respect to continuation of employment by or service for the Company or a
Subsidiary as an employee or outside director nor interfere in any way with the
right of the Company or a Subsidiary to terminate such person's employment or
service as an employee or outside director at any time with or without cause.

21. WITHHOLDING PAYMENTS: If, upon the exercise of a Nonqualified Option or
Stock Appreciation Right, or upon the award of Restricted Stock or the
expiration of restrictions applicable to Restricted Stock, or upon a
disqualifying disposition (within the meaning of Section 421 of the Code) of
shares acquired upon exercise of an Incentive Option, or upon the payment of
cash pursuant to a Performance Unit award or the issuance of shares pursuant to
(or the payment of cash in settlement of) a Performance Share award, there shall
be payable by the Company or a Subsidiary an amount for income tax withholding,
in the Committee's sole discretion, either the Company shall appropriately
reduce the amount of stock or cash to be paid to the Participant or the
Participant shall pay such amount to the Company or Subsidiary to reimburse it
for such income tax withholding. The Committee may in its sole discretion permit
Participants to satisfy such withholding obligations, in whole or in part, by
electing to have the amount of Common Stock delivered or deliverable by the
Company upon exercise of a stock option or upon award of Restricted Stock or
Performance Shares appropriately reduced, or by electing to tender Common Stock
back to the Company subsequent to exercise of a stock option or award of
Restricted Stock or Performance Shares, to reimburse the Company for such income
tax withholding, subject to such rules and regulations as the Committee may
adopt. The Company or any of its Subsidiaries shall also have the right to
withhold the amount of such taxes from any other sums or property due or to
become due from the Company or any of its Subsidiaries to the Participant upon
such terms and conditions as the Committee shall prescribe. The Company may also
defer issuance of stock under the Plan until payment by the Participant to the
Company or any of its Subsidiaries of the amount of any such tax. In the case of
a Regulation T Stock Option Exercise, the Committee may in its discretion permit
the Participant to irrevocably instruct a stock broker to promptly deliver to
the Company an amount (in addition to the option exercise price) equal to any
withholding tax owing in respect of the option exercise from the proceeds of the
stock broker's sale of or loan against some or all of the shares. In the event
the Company then has in effect a stock repurchase program,

F-9

in its discretion and subject to such terms and conditions as it may impose, the
Committee may permit Participants to satisfy their withholding tax obligations
by requesting that the Company repurchase (and retain the repurchase price of)
that number of shares issuable or issued under the Plan having a then fair
market value equal to the amount of withholding tax due. The Committee may make
such other arrangements with respect to income tax withholding as it shall
determine.

22. CHANGE IN CONTROL: Notwithstanding any other provision of the Plan or
any provision of a grant or award agreement, in the event the Committee
determines that there has been or will be a change in control of the Company or
of any Subsidiary, the Committee may provide for any treatment of outstanding
stock options, Stock Appreciation Rights, Restricted Stock, Performance Share or
Performance Unit grants or awards which it determines, in its discretion, to be
appropriate. Such treatment may include, without limitation, acceleration of
vesting of stock options and Stock Appreciation Rights, release of restrictions
applicable to Restricted Stock, or deeming Performance Share or Performance Unit
awards to have been earned. In determining whether there has been or will be a
change in control of the Company or of any Subsidiary, the Committee may utilize
a definition it deems appropriate of a change in control contained in any
existing agreement between the Company or a Subsidiary and one of its senior
executives.

23. GENERAL: Grants or awards may be made to Participants who are foreign
nationals or employed outside the United States, or both, on such terms and
conditions different from those specified in the Plan as may, in the judgment of
the Committee, be necessary or desirable in order to recognize differences in
local law or tax policy. The Committee also may impose conditions on the
exercise or vesting of grants or awards in order to minimize the Company's
obligation with respect to tax equalization for Participants on assignments
outside their home country.

Except as otherwise provided in the Plan, the Committee shall be authorized
to make adjustments in performance goal criteria in recognition of unusual or
nonrecurring events affecting the Company or its financial statements or changes
in applicable laws, regulations or accounting principles. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any Performance Share or Performance Unit award in the manner and to the
extent it shall deem desirable to carry it into effect. In the event the Company
shall assume outstanding employee benefit grants or awards or the right or
obligation to make future such grants or awards in connection with the
acquisition of another Company or business entity, the Committee may, in its
discretion, make such adjustments in the terms of grants or awards under the
Plan as it shall deem appropriate.

Notwithstanding any other provision of the Plan, in the case of any shares
of stock that may be issued to a Participant, including upon exercise of a stock
option, upon the grant of or release of restrictions applicable to Restricted
Stock, or upon satisfaction of performance goals applicable to Performance Share
grants, the Company may effect the issuance of the shares on a non-certificated
basis, subject to applicable law or the applicable rules of any stock exchange.

24. EFFECTIVENESS OF PLAN: The Plan shall be effective as of July 16, 2004,
provided that the shareholders of the Company approve the Plan within twelve
(12) months of that date. Stock options, Stock Appreciation Rights, Restricted
Stock and rights to obtain Performance Shares and Performance Units may be
granted or awarded prior to shareholder approval of the Plan, but each such
stock option, Stock Appreciation Right, Restricted Stock, Performance Share or
Performance Unit grant or award shall be subject to shareholder approval of the
Plan. No stock option or Stock Appreciation Right may be exercised and no
Performance Shares or Performance Unit may be issued prior to shareholder
approval, and any Restricted Stock awarded is subject to forfeiture if such
shareholder approval is not obtained.

F-10

25. TERMINATION, DURATION AND AMENDMENTS OF PLAN: The Plan may be abandoned
or terminated at any time by the Board of Directors of the Company. Unless
sooner terminated by the Board of Directors, the Plan shall terminate on the
date ten (10) years after its adoption by the Board of Directors, and no stock
options, Stock Appreciation Rights, Restricted Stock or rights to obtain
Performance Shares or Performance Units may be granted or awarded thereafter.
The termination of the Plan shall not affect the validity of any stock option,
Stock Appreciation Right, Restricted Stock or award of a right to obtain
Performance Shares or Performance Units outstanding on the date of termination.

For the purpose of conforming to any changes in applicable law or governmental
regulations, or for any other lawful purpose, the Board of Directors shall have
the right, without approval of the shareholders of the Company, to amend or
revise the terms of the Plan or any award or agreement pursuant to the Plan at
any time; provided, however that no such amendment or revision shall (i) with
respect to the Plan, increase the maximum number of shares in the aggregate
which are subject to the Plan or with respect to which grants or awards may be
made to individual Participants (subject, however, to the provisions of
Paragraph 5), materially change the class of persons eligible to be Participants
under the Plan, establish additional and different business criteria on which
Performance Share or Performance Unit goals are based or materially increase the
benefits accruing to Participants under the Plan, without approval or
ratification of the shareholders of the Company; or (ii) with respect to an
award or agreement pursuant to the Plan, except as otherwise specifically
provided in the Plan, alter or impair any stock option, Stock Appreciation
Right, Restricted Stock or right to obtain Performance Shares or Performance
Units which shall have been previously granted or awarded under the Plan,
without the consent of the holder thereof.

The Plan was approved by the Compensation Committee of the Board of Directors on
July 9, 2004. The Board of Directors adopted the Plan on July 16, 2004 subject
to shareholder approval at the 2004 Annual Meeting of Shareholders.

F-11

www.handleman.com

[HANDLEMAN HANDLEMAN COMPANY
COMPANY LOGO] ANNUAL MEETING OF SHAREHOLDERS
September 8, 2004
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
HANDLEMAN COMPANY

Eugene A. Miller, James B. Nicholson and Lloyd E. Reuss, and each of them,
are hereby authorized to represent and vote the stock of the undersigned at the
Annual Meeting of Shareholders to be held September 8, 2004, and at any
adjournment thereof.

The undersigned hereby revokes any proxy or proxies heretofore given to
vote such stock, and hereby ratifies and confirms all that said attorneys and
proxies, or their substitutes, may do by virtue hereof. If only one attorney and
proxy shall be present and acting, then that one shall have and may exercise all
the powers of said attorneys and proxies.

The undersigned hereby acknowledges receipt of the notice of said Annual
Meeting of Shareholders, the Proxy Statement relating thereto and the Annual
Report for 2004.

(Continued and to be signed on the other side)

ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)

- FOLD AND DETACH HERE -

YOU CAN NOW ACCESS YOUR HANDLEMAN COMPANY ACCOUNT ONLINE.

Access your Handleman Company shareholder account online via Investor
ServiceDirect(R) (ISD).

Mellon Investor Services LLC, Transfer Agent for Handleman Company, now makes it
easy and convenient to get current information on your shareholder account.

- View account status - Make address changes
- View certificate history - Establish/change your PIN

THIS CAN BE DONE BY VISITING THE WEB AT HTTP://WWW.MELLONINVESTOR.COM. CLICK ON
THE "FOR INVESTORS" BUTTON AND THEN THE "INVESTOR SERVICEDIRECT" BUTTON.
THEN FOLLOW THE INSTRUCTION FOR ACCESSING YOUR ACCOUNT.

FOR TECHNICAL ASSISTANCE CALL 1-877-978-7778 BETWEEN 9AM-7PM
MONDAY-FRIDAY EASTERN DAYLIGHT TIME

The shares represented by this proxy will be voted in Please
accordance with the specifications made herein. If no Mark Here [ ]
specifications are made, this proxy will be voted FOR for Address
the election of the nominees for Directors listed below Change or
and FOR the Proposal to adopt the Handleman Company 2004 Comments
Stock Plan listed below. SEE REVERSE SIDE

THE BOARD RECOMMENDS A VOTE FOR THE THE BOARD RECOMMENDS A VOTE FOR THE
NOMINEES LISTED BELOW. HANDLEMAN COMPANY 2004 STOCK PLAN.

FOR AGAINST ABSTAIN
1. Election of FOR all WITHHOLD 2. The proposal [ ] [ ] [ ]
Directors. nominees AUTHORITY to approve
listed to to vote for the Handleman
NOMINEES: the left all nominees Company 2004
01 Elizabeth (except listed to stock Plan.
A. Chappell as marked the left
to the
02 Ralph J. contrary
Szygenda below)
[ ] [ ]

(INSTRUCTION: To withhold authority to 3. To transact such other business as
vote for any individual nominee, write may properly come before the Annual
that nominee's name in the space Meeting and at any adjournment
provided below) thereof.

PLEASE PROMPTLY DATE, SIGN, AND MAIL THIS PROXY IN THE ENCLOSED ENVELOPE

[ ]

SIGNATURE_____________________ SIGNATURE____________________DATED_________, 2004
The signature(s) of shareholder(s) should correspond exactly with the name(s)
stenciled hereon, Joint owners should sign individually. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title as such.

- FOLD AND DETACH HERE -

CONSENTING TO RECEIVE ALL FUTURE ANNUAL MEETING MATERIALS AND REGISTERED
SHAREHOLDER COMMUNICATIONS ELECTRONICALLY IS SIMPLE AND FAST! Enroll today at
www.melloninvestor.com for secure online access to your proxy materials,
statements, tax documents and other important shareholder correspondence. I
understand that the Company may no longer distribute printed materials to me for
any future shareholder meeting until such consent is revoked. I understand that
I may revoke my consent at any time by contacting the Company's transfer agent,
Mellon Investor Services LLC, Ridgefield Park, NJ and that costs normally
associated with electronic delivery, such as usage and telephone charges as well
as any costs I may incur in printing documents, will be my responsibility.

VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK

INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11:59 PM EASTERN DAYLIGHT
TIME THE DAY PRIOR TO THE ANNUAL MEETING DAY.

YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.

INTERNET TELEPHONE MAIL
HTTP://WWW.EPROXY.COM/HDL 1-800-435-6710 Mark, sign and date
Use the Internet to vote Use any touch-tone your proxy card
your proxy. Have your OR telephone to vote OR and return it in the
proxy card in hand when your proxy. Have enclosed postage-paid
you access the web site. your proxy card envelope.
in hand when you
call.

IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE, YOU DO NOT NEED TO MAIL BACK
YOUR PROXY CARD.

IF YOU ARE LOCATED OUTSIDE THE UNITED STATES, THE DELIVERY OF YOUR PROXY MUST BE
VIA THE INTERNET OR MAIL

YOU CAN VIEW THE ANNUAL REPORT AND PROXY STATEMENT
ON THE INTERNET AT WWW.HANDLEMAN.COM
REFERENCE INVESTOR RELATIONS/KEY FINANCIALS